Question And Answer
Subject: Tax on renunciation of right issue
Category: 
Querist: Chandan
Answered by:
Tags: , ,
Date: January 18, 2022
Query asked by Chandan

Let’s say one of the share holder, A (Non- resident), of ABC Pvt has renounced his right to subscribe to right issue to D (Non- resident). Would D attract provisions of sec 56(2)(x)? Also what would be the tax implication on A?

File Uploaded: Not Available


The Hon’ble Supreme Court in the case of Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651 (SC) held that, any diminution in the price of the existing shares, as a result of right issue cannot be set-off against the amount received on renouncing the right to receive shares, while computing Capital Gains.

Therefore, “Right to receive shares” is a Capital Asset. Therefore, the amount received by A would be taxable as Capital Gains, considering the cost of acquisition as Nil.

In the hands of D, there shouldn’t be any tax implications under section 56(2)(x) of the Income-tax Act, 1961 (Act). For the purpose of section 56(2)(x) of the Act, “property” has been defined under explanation (d) to section 56(2)(vii) of the Act, which does not include a “right to receive shares”.



Disclaimer: This article is only for general information and is not intended to provide legal advice. Readers desiring legal advice should consult with an experienced professional to understand the current law and how it may apply to the facts of their case. Neither the author nor itatonline.org and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this article nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of itatonline.org
One comment on “Tax on renunciation of right issue
  1. Ajoy says:

    However the actual consideration received by ‘A’ shall only be taxable and section 50CA shall not be applicable since ‘right to receive shares’ is not share of a company.

Leave a Reply

Your email address will not be published. Required fields are marked *

*