1993 (4) TMI 218 - HC - Income Tax

Capital gains - Computation of -Assessment year 1974-75 - Assessee, a non-resident company, maintaining accounts in UK, sold certain shares of Rs. 10 at Rs. 22 per share in India - Cost of acquisition of such shares was Rs. 10 per share - Acquisition and transfer of these shares took place in India and purchase and sale prices were expressed in India - Assessee worked out capital gain by converting cost of acquisition of shares into pound sterling at the then prevailing exchange rate and also by converting sale price of shares into pound sterling at rate prevailing at the time of transfer - According to assessee, difference so arrived in pound sterling converted again into Indian rupee could only be treated as capital gain for purpose of assessment under Act - ITO, however, worked out capital gain by taking actual sale proceeds at rate of Rs. 22 and deducting therefrom cost of these shares at rate of Rs. 10 per share - Whether computation made by ITO was justified - Held, yes - Whether place where assessee resides and currency in which money is deposited in bank for purpose of purchase, etc., are relevant factors for determining income arising from transactions where cost of acquisition and consideration for transfer, etc., are all expressed in Indian rupee - Held, no

Summary

Issues:
1. Computation of capital gains for a non-resident maintaining accounts in the UK on the sale of shares of an Indian company.
2. Determination of the cost of shares for deduction purposes based on exchange rates.
3. Consideration of additional grounds by the Appellate Assistant Commissioner.

Analysis:

Issue 1: Computation of Capital Gains
The case involved the sale of shares by a non-resident in an Indian company, with the main dispute being the computation of capital gains. The non-resident contended that the capital gains should be first computed in pounds (as the accounts were maintained in the UK) and then converted into Indian rupees for taxation purposes. However, the court held that since both the purchase and sale prices were in rupees, and the transactions occurred in India, there was no need to convert the amounts into foreign currency for calculating capital gains. The court emphasized that the currency used for purchase or residence of the assessee was irrelevant when the transactions were in Indian rupees. Therefore, the court ruled in favor of the revenue on this issue.

Issue 2: Determination of Cost of Shares
Another aspect was the determination of the cost of shares for deduction purposes based on exchange rates. The non-resident sought to calculate the capital gains by converting the acquisition cost and sale price into pounds and then back to Indian rupees. However, the court rejected this approach, stating that such conversion was unnecessary when the transactions were expressed in Indian rupees. The court cited a previous case where it was held that conversion is required only when income is expressed in foreign currency. Consequently, the court ruled in favor of the revenue on this issue as well.

Issue 3: Consideration of Additional Grounds
Regarding the consideration of additional grounds by the Appellate Assistant Commissioner, the court referred to a Supreme Court decision that affirmed the authority of the AAC to entertain new grounds raised by the appellant during the appeal stage. Consequently, the court ruled in favor of the assessee on this issue, allowing the AAC to consider additional grounds raised by the appellant.

In conclusion, the court answered the first and second questions in favor of the revenue and the third question in favor of the assessee. The reference was disposed of accordingly, with no order as to costs.