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Calculation of cost of right shares for taxation purposes. Analysis: The case involved a limited company holding equity shares in another company. The second company issued new equity shares, including right shares and bonus shares, to its existing shareholders. The record date for the issue of right and bonus shares was fixed, and the limited company was offered 16,106 right shares. The limited company sold 4,000 right shares, and the remaining 12,106 lapsed. The Income Tax Officer (ITO) calculated the short-term capital gain based on the market value of the old shares and the cost of the right shares. The Commissioner (Appeals) agreed with the ITO's calculation but disagreed on including the public issue value for ex-right purposes. Upon appeal, the department and the limited company contested the Commissioner (Appeals) decision. The limited company argued that the cost of the right shares should not be attributed at Rs. 3.50 per share, as determined by the Commissioner (Appeals). They presented the stock exchange prices before and after the issuance of right and bonus shares to support their argument that the value was higher. The senior departmental representative supported the ITO's decision and opposed the Commissioner (Appeals) modification. The dispute revolved around the value of the right shares renunciated by the limited company. The Commissioner (Appeals) excluded the public issue value from the calculation and determined the cost of the right shares at Rs. 3.50 per share. However, the limited company argued that the value should be higher based on the stock exchange prices. The Tribunal analyzed the situation, considering the ratio of right and bonus shares issued, and concluded that the value should be Rs. 6.25 per share, as supported by a Supreme Court decision. In conclusion, the Tribunal partially allowed the limited company's appeal and dismissed the departmental appeal.
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