ITAT Delhi Allows Capital Loss on Share Reduction by RBS AA Holdings (Netherlands).

Headnote:

The ITAT allowed the appeal of RBS AA Holdings (Netherlands) B.V., holding that the long-term capital loss claimed on the reduction of shares of RBS Prime Services (India) Pvt. Ltd. is valid. The Tribunal held that the fair market value (FMV) for the purpose of section 50CA of the Income-tax Act, 1961, must be determined on the date of transfer (20 November 2017), as per Rule 11UAA, and not as adopted by the AO (31 March 2017). Since the actual consideration of Rs.10.09 per share exceeded the FMV, section 50CA was inapplicable. Consequently, the capital reduction transaction qualified for long-term capital loss treatment.

Background:

1. The assessee, a Dutch company, purchased 23,10,21,870 shares of RBS Prime in 2013 for Rs.13.02 per share under a secondary purchase agreement.
2. RBS Prime ceased business after surrendering its NBFC license in February 2017. Subsequently, 14,67,69,790 shares were reduced under an NCLT-approved scheme for Rs.10.09 per share.
3. The assessee claimed long-term capital loss and exemption of dividend income under section 10(34).
4. AO and DRP disallowed the claim, substituting FMV as of 31 March 2017 at Rs.12.58 per share, and alleged the transaction as a tax avoidance arrangement.

Tribunal Observations:

1. The shares were purchased in 2013 and recorded in the balance sheet consistently; the AO’s skepticism of recent transactions was misplaced.
2. FMV must be determined on the date of transfer as per Rule 11UAA. The valuation report submitted by the assessee on 20 November 2017 showed FMV of Rs.10.09 per share, higher than FMV, making section 50CA inapplicable.
3. Dividend received post-audit, subject to DDT, cannot be included again in sale consideration to avoid double taxation.
4. No evidence of a colourable device to avoid taxes was found; the transaction followed NCLT approval and statutory procedures.

Decision:

1. ITAT allowed the assessee’s appeal. The capital reduction transaction results in a long-term capital loss of Rs.43,06,88,843.
2. The AO’s adjustments substituting FMV, rejecting cost of acquisition, and alleging tax avoidance were set aside.
3. Dividend issues were upheld as exempt under section 10(34).

Legal Provisions Discussed:

1. Sections 2(29A), 2(29B), 2(47), 48, 50CA, 56(2)(viib), 115-O – Income-tax Act, 1961
2. Rule 11UA & 11UAA – Determination of FMV of unquoted shares
3. India–Netherlands DTAA, Article 13(5) – Treaty benefits on corporate reorganizations

Citation: 2025:ITAT:DEL:2261

Case: RBS AA Holdings (Netherlands) B.V. v. DCIT, Circle 3(1)(1), International Taxation, New Delhi

Court/Bench: Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘D’

Coram: Shri S. Rifaur Rahman, Accountant Member & Shri Yogesh Kumar U.S., Judicial Member

Date of Decision: 19 November 2025

ITA No.: 2261/Del/2022

Assessment Year: 2018-19