9911796707
|
Home
Issues Involved:
1. Admission of the additional grounds of appeal raised by the revenue. 2. Option of substituting the fair market value of a capital asset as on 1-1-1964 under section 55(2)(i) of the Income-tax Act. 3. Cost of acquisition of the bonus shares in Madura Mills Co. Ltd. and A & F Harvey Ltd. 4. Rate of capitalisation to be adopted in valuing the original 22,700 shares held by the assessee in A & F Harvey Ltd. as on 1-1-1964. 5. Permissibility of taking the average of the values arrived at on yield method and break-up value method of shares in A & F Harvey Ltd. 6. Relief to be allowed in the appeals and the extent of such relief. Issue-wise Detailed Analysis: 1. Admission of the Additional Grounds of Appeal Raised by the Revenue: The revenue raised an additional ground of appeal on 16th December 1986, arguing that the Commissioner of Income-tax (Appeals) should have issued an enhancement notice and enhanced the total amount of capital gain chargeable to tax. The Tribunal considered the admissibility of this additional ground, noting that it raised an important question of law regarding the right of the assessee to substitute the fair market value of the shares as on 1-1-1964 as his cost of acquisition. The Tribunal decided to entertain the plea raised by the revenue in its additional ground of appeal as it touched upon one aspect of the main issue involved in the appeals. 2. Option of Substituting the Fair Market Value of a Capital Asset as on 1-1-1964: The Tribunal examined whether the option of substituting the fair market value as on 1-1-1964 under section 55(2)(i) was available to the assessee for shares in the amalgamated company, Madura Coats Ltd. The Tribunal concluded that the fiction created by section 49(2) should be carried to its logical conclusion, allowing the assessee to exercise the statutory right to substitute the fair market value of the shares as on 1-1-1964. The Tribunal decided in favor of the assessee, holding that the departmental authorities rightly took the fair market value of the shares as on 1-1-1964 for computing the long-term capital gains. 3. Cost of Acquisition of the Bonus Shares: The Tribunal considered whether the cost of acquisition of the bonus shares in Madura Mills Co. Ltd. and A & F Harvey Ltd. should be allowed as a separate deduction. The Tribunal referred to the decision of the Madras High Court in the case of T. V. S. & Sons Ltd., which held that when the entire shareholding, including both original and bonus shares, is transferred, the question of determining the cost of acquisition of the bonus shares separately does not arise. Based on this precedent, the Tribunal decided in favor of the revenue, ruling that the assessee is not entitled to deduct the cost of acquisition of the bonus shares separately. 4. Rate of Capitalisation to be Adopted: The Tribunal examined the rate of capitalisation to be adopted for valuing the original 22,700 shares held by the assessee in A & F Harvey Ltd. as on 1-1-1964. The Tribunal upheld the decision of the CIT (Appeals) to adopt a 6% rate of capitalisation, based on the circular issued by the Central Board of Direct Taxes (CBDT) in 1960, which was in force as on 1-1-1964. The Tribunal rejected the revenue's contention to adopt a 9% rate based on a later circular issued in 1967. 5. Permissibility of Taking the Average of the Values Arrived at on Yield Method and Break-Up Value Method: The Tribunal considered whether it was permissible to take the average of the values arrived at on the yield method and the break-up value method of shares in A & F Harvey Ltd. The Tribunal referred to the decision of the Supreme Court in CGT v. Smt. Kusumben D. Mahadevia, which held that a combination of the two methods is not a valid principle of valuation. Based on this precedent, the Tribunal decided in favor of the assessee, ruling that the average of the values arrived at on the yield method and the break-up value method should not be taken. 6. Relief to be Allowed in the Appeals: Given the Tribunal's decisions on the various issues, the long-term capital gains chargeable to tax in the hands of the assessee were calculated as follows: - Fair market value of the original 3000 shares in Madura Mills Co. Ltd. as on 1-1-1964: Rs. 1,00,000 - Fair market value of the original 22,700 shares in A & F Harvey Ltd. as on 1-1-1964: Rs. 8,15,384 - Actual cost of acquisition of 7,883 shares issued in 1972 in A & F Harvey Ltd.: Rs. 1,39,792 - Total cost of acquisition of the shares transferred: Rs. 10,56,036 - Net sale consideration received by the assessee: Rs. 12,63,763 - Long-term capital gains: Rs. 2,07,727 The Tribunal directed the Income-tax Officer to take the figure of long-term capital gains at Rs. 2,07,727. Consequently, the assessee's appeal was allowed, and the department's appeal was allowed in part.
|
