Adjust capital loss against capital gains

RUN UP TO THE BUDGET 2004-05/ FICCI

The Finance Act, 2003 introduced Section 10(36), which provided that capital gains would not be chargeable to tax if specified conditions such as the asset which is transferred, is a long-term capital asset being an eligible equity share in a company, such shares purchased on or after March 1, 2003 but before March 1, 2004, and or such, shares are held by the taxpayer for a period of 12 months or more, are satisfied.

So, the Federation of Indian Chambers of Commerce and Industry (Ficci) suggested that in order to achieve the purpose, the insertion of Section 10(36), it should be specifically provided that capital loss arising on transfer of shares, which meets specified conditions of the section, should be allowed to be adjusted against capital gains.

Also, a doubt has been raised whether the allottees of such eligible sahres would be entitled to the benefit of Clause 36 of Section 10.

This is because in the main body of the clause, the word used is 'purchased' and not 'acquired'. The chamber asked the finance ministry to provide clear guidelines on such issues.

Also, there are doubts that if the allottee of such shares, or the person who has purchased such shares, gifts such shares to another person, whether the person receiving the gift would be entitled to benefit of exemption under Section 10(36), or not.

There should be clarification on this issue also, Ficci said.

Ficci has pointed out that all the transactions of purchase and sale, through recognised stock exchanges, are now in demat form, where no distinctive numbers are associated with shares purchased or sold.

This makes it impossible to find out whether the shares were purchased and sold by a person, were allotted through the public issue after March 1, 2003.

Ficci has said that in such cases, the entire equity shares of the company should be treated as eligible shares, whether they were allotted through public issue or not.