Capital Reduction :

Sale of a capital asset is not a pre-condition for capital gains. As a result of reduction in the face value of the shares, the share capital balance is reduced. It also extinguishes the right of the preference shareholder to receive dividend on the shares held and the right to share in the distribution of the net assets on liquidation in proportion to the extent of reduction in the capital. Such reduction in shareholder’s right would amount to a transfer within the meaning of section 2(47) of the Act [Kartikeya V. Sarabhai vs. CIT (1997) 228 ITR 163 (SC)].