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Is Exemption available u/s 10(38) on transfer of Share Warrants

Started by Pritesh Jain, November 30, 2011, 01:18:52 PM

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Pritesh Jain

Dear all,
             Wanted your views regarding availability of Exemption u/s 10(38) upon transfer of Share warrants

Thanks in advance


I believe STT is also not attracted on this transactions


exemption under section 10(38) is restricted to shares that too if gain arises on transfer thereof which transaction shall be liable to STT. Share warrants are not traded on a recognised stock exchange hence no STT is levied. Therefore no exemption under section 10(38) will be available.



agree with ca manoj gupta.
may i clarify a bit more: it is restricted to "equity shares". so no pt. of confusion. warrants are not qualified.
(just to share - sometimes better to say - these days they are mostly traded, warrants are also traded on stock exchanges)

Pritesh Jain

To add Further,
Would the event of conversion of warrant(s) to equity share(s) amount to transfer for Capital Gains purposes;

Further would like to understand the period of holding applicable  to classify warrant(s) as a STCA / LTCA (12 months or 36 months) .


1. In the case of Ajay C. Mehta v. Dy. CIT (2008) 305 ITR 155 (Ahd-Trib) : (2008) 114 ITD 628 (Ahd-Trib) : (2008) 115 TTJ (Ahd-Trib) 281 it was held that conversion of share warrants into equity shraes amounts to tranfer but no gain/loss can be computed for want of full value of consideration.
2. It will be 36 months but as said above since no gain/loss can be computed hence no such req would arise.


ashutosh majumdar

I wonder if the argument that there is no capital gain because there is no consideration still holds good in light of the SB decision in Bennett Coleman. I'm not sure - just raising a red flag for investigation - I'll also study it in detail.


In Benette Coleman also the same thing was held. In that case it was held that "Assuming that a reduction of shares in the manner done by the assessee amounts to a "transfer", s. 45 is not attracted because there is no "consideration" received by the assessee for the transfer. Unless and until a particular transaction leads to "computation" of capital gains or loss as contemplated by s. 45 & 48, it cannot attract capital gain tax. On facts, the assessee had not received any consideration for reduction of share capital. While the number of shares held by the assessee has reduced to 50%, nothing had moved from the side of the company to the assessee (B. C. Srinivasa Setty 128 ITR 294 (SC) & Bombay Burmah 147 TR 570 followed)"
The argument still hold.

Pritesh Jain

However, the present case Equity Shares are received from the Company in lieu for surrendering Share Warrants.Still would the same stand hold good.
There is no reduction in face value of warrants nor there is any extinguishment of rights in warrants(forfieture due to non-payment)
Can the Market value (Quoted rate in RSE) of Equity shares be taken as full value of consideration - i.e. can the event of conversion be considered exchange