Clarification: The Income Tax Ordinance deals with capital gains tax on the sale of an asset; or with the income tax imposed on income that was earned by a taxpayer, from one of the sources of income listed in the Ordinance. There is no provision in the Income Tax Ordinance that refers to the overall tax liability of an investment transaction, with the possibility of offsetting expenses or losses from income from different sources or capital gains, as long as these are not explicitly permitted in the Income Tax Ordinance.

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The Income Tax Ordinance does not, as mentioned, tax the transaction as a whole, but rather refers separately to the capital gain (as defined in the definition of "capital gain" in Section 88 of the Income Tax Ordinance) on the sale of each of the assets being sold, even if they were sold as part of a single transaction. The Income Tax Ordinance also refers separately to the tax liability on income from sources, which may accrue to the shareholder as a result of the termination of his investment in the company, or his separation from it, such as income from dividends or from the sale of shares.

From the above, we learn that even if the two types of shares were sold as part of a comprehensive framework for terminating an investment/sale, this does not change the fact that in practice two separate assets were sold: preferred shares and ordinary shares, even if the sale of the two assets was made as a single unit, in order to protect the rights of the parties upon separation, and therefore capital gains must be calculated on the sale of each of them separately, as prescribed in the provisions of the Ordinance.

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