Allahabad HC Ruling No Legal Mechanism for Unlisted OFS Shares Capital Gains Before 2024
The recent Allahabad High Court ruling has brought significant relief for taxpayers dealing with unlisted OFS shares. The Court quashed an income tax notice stating there was no legal mechanism to compute capital gains on such shares before the 2024 amendment.
Background: What Are Unlisted OFS Shares?
- OFS (Offer for Sale): A method where promoters sell shares to the public.
- Unlisted Shares: Shares not listed on any recognised stock exchange.
- Prior to the Finance Act, 2024, there was ambiguity in computing capital gains for unlisted OFS transactions.
What the Allahabad High Court Decided
Key Takeaways
✅ Case: Radhakrishna Agarwal vs. Income Tax Department
✅ Issue: Validity of reassessment notice for capital gains on unlisted OFS shares for FY 2017–18.
✅ Ruling: No explicit provision existed to determine ‘full value of consideration’ under Section 50CA for such unlisted shares before the amendment.
✅ Result: Reassessment notice quashed.
Reference:
Legal Angle: Section 50CA & 2024 Amendment
| Aspect | Before 2024 | After 2024 Amendment |
|---|---|---|
| Provision for deemed fair value | Not clear | Explicitly clarified |
| Impact on OFS of unlisted shares | Ambiguous | Clear computation mechanism |
| Result for taxpayers | Disputes, notices | Certainty |
CBDT Clarification: The Finance Act, 2024 explicitly extended Section 50CA to cover certain unlisted OFS transactions, plugging this loophole.
Expert Tip: How to Handle Similar Tax Notices
👉 Consult your CA immediately.
👉 Check if your transaction year was prior to the 2024 amendment.
👉 Rely on this precedent to respond to reassessment notices.
👉 Keep all transaction documents handy to defend your case.
Practical Implication for Taxpayers
- If you sold unlisted shares via OFS before FY 2023–24, and received a notice, this judgment can protect you.
- For future transactions, new rules apply—ensure valuation is per Section 50CA to avoid disputes.
Frequently Asked Questions
Q1. What is Section 50CA of the Income-tax Act?
Section 50CA deals with determining fair market value for capital gains on the transfer of unlisted shares.
Q2. Does this ruling cover all OFS transactions?
Only unlisted OFS shares before the 2024 amendment. Listed shares follow different rules.
Q3. Should I ignore such notices now?
No. Always respond using this judgment as support. Take legal help.
Conclusion
The Allahabad HC ruling clarifies a long-standing grey area in capital gains tax for unlisted OFS shares. If you’re impacted, act fast and use this precedent to safeguard your rights.
👉 Need help? Contact Efiletax for expert notice handling, tax filing, and compliance support.
Summary
Allahabad High Court quashed a tax notice for capital gains on unlisted OFS shares, ruling no legal mechanism existed before the 2024 amendment. Taxpayers can use this precedent to challenge similar notices for transactions before FY 2023–24.