The Hindu : Loss in US-64 is not allowable

Online edition of India's National Newspaper
Monday, Feb 23, 2004

Business

Business

Loss in US-64 is not allowable

QUESTION: I was holding US-64 for over five years, which was repurchased by UTI by the issue of 6.75 per cent tax-free bonds during this year. This results in capital loss. Could this capital loss be adjusted against my other income/short-long term capital gains for the current year or carried forward for future set off? Advise.

ANSWER: The conversion of US-64 to tax-free bonds should be treated as an exchange, which is specifically included in the definition of transfer under Sec. 2(47) of the Income-tax Act. The face value of the tax-free bond should be taken as the price received for the US-64 units surrendered by the holder. Since US-64 is not a money bond, the holder would ordinarily be entitled to indexation as well. While this is the position for all units issued by the Unit Trust of India for capital gains, which are taxable, there is exception only in respect of US-64 in view of Sec. 10(33) inserted by Finance Act, 2003 with effect from assessment year 2003-04 providing there will be no liability in respect of transfer of a capital asset being Unit-64, where the transfer takes place on or after the April 1, 2002. It, therefore, means that while profit by way of capital gains will be exempt, loss, if any, will be ignored. Since most people have suffered loss, this exemption from capital gains is an unwanted gift, which imposes a burden instead of giving relief. The exemption is, therefore, a proverbial Greek gift.

S. Rajaratnam

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