2005 (6) TMI 525 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of the first proviso to section 48 of the Income-tax Act, 1961.
2. Computation of capital gains for original shares and bonus shares.
3. Acceptance of new pleas at the appellate stage.

Issue-wise Detailed Analysis:

1. Applicability of the First Proviso to Section 48:
The primary issue was whether the first proviso to section 48, which deals with the computation of capital gains for non-residents, was applicable. The assessee argued that the cost of acquisition and the sale consideration should be converted into Deutsche Marks (DM) and then back into Indian Rupees to compute the capital gains, as the initial investment was in DM. The Assessing Officer (AO) disagreed, stating that the shares were acquired in Indian currency. However, the Commissioner of Income-tax (Appeals) supported the assessee's view, noting that the shares were allotted in lieu of payments for technical know-how and machinery, which were incurred in foreign currency. The Tribunal upheld this view, stating that the cost of acquisition in DM should be considered, and the capital gains should be computed by converting the sale consideration into DM and then back to Indian Rupees.

2. Computation of Capital Gains for Original and Bonus Shares:
The assessee computed the capital gains by converting the sale consideration and the cost of acquisition into DM and then back to Indian Rupees. The AO computed the capital gains by indexing the cost of acquisition in Indian currency. The Commissioner of Income-tax (Appeals) accepted the assessee's computation for the original shares but rejected the assessee's claim for computing the cost of acquisition of bonus shares based on the fair market value as of April 1, 1981. The Tribunal held that the cost of acquisition for the original 25,000 shares should be taken at DM 2,17,175. For the 55,000 bonus shares issued before April 1, 1981, the cost of acquisition should be taken as the fair market value as of April 1, 1981. For the remaining 33,333 bonus shares, the cost of acquisition should be taken as nil. The Tribunal directed the AO to recompute the capital gains accordingly.

3. Acceptance of New Pleas at the Appellate Stage:
The Revenue contended that the Commissioner of Income-tax (Appeals) should not have entertained the new plea regarding the fair market value of shares as of April 1, 1981, as it was not raised before the AO. The Tribunal rejected this contention, citing the Supreme Court's judgment in Jute Corporation of India Ltd. v. CIT, which allows the Commissioner of Income-tax (Appeals) to consider new grounds raised at the appellate stage.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the first proviso to section 48 was applicable, and the capital gains should be computed by converting the sale consideration and the cost of acquisition into DM and then back to Indian Rupees. The cost of acquisition for the original shares was to be taken at DM 2,17,175, for the bonus shares issued before April 1, 1981, at the fair market value as of April 1, 1981, and for the remaining bonus shares, as nil. The Revenue's appeal was dismissed, and the AO was directed to recompute the capital gains accordingly.