2012 (8) TMI 545 - HC - Income Tax

Whether income earned from sale of tradeable warrants was not taxable on the ground that the asset transferred had no cost of acquisition Held that - According to Clause (aa) of section 55(2) of the Income-tax Act, cost of acquisition attributable to the trading warrants shall be statutorily deemed to be nil with effect from April 1, 1996 - income earned from sale of tradeable warrants was not taxable

Summary

Issues:
1. Taxability of income earned from the sale of tradeable warrants without any cost of acquisition.

Analysis:
The case involved a dispute regarding the taxability of income earned from the sale of tradeable warrants without any cost of acquisition during the assessment year 1994-95. The assessee had ceased trading activities and converted remaining shares into investments. The Assessing Officer held the income from the sale of tradeable warrants as liable to capital gains tax, a decision upheld by the Commissioner of Income-tax (Appeals). However, the Income-tax Appellate Tribunal ruled in favor of the assessee, stating that the income was not taxable due to the absence of a cost of acquisition for the tradeable warrants.

The key question addressed was whether tradeable warrants without a cost of acquisition could be considered to have a "nil" cost, especially in the absence of any statutory provision to that effect. The court noted that the Finance Act, 1995, introduced clause (aa) of section 55(2) of the Income-tax Act, 1961, which deemed the cost of acquisition for trading warrants as nil from April 1, 1996, onwards. Since the assessment year in question was 1994-95, predating this statutory provision, the court upheld the decision of the Income-tax Appellate Tribunal that the income from the sale of tradeable warrants was not subject to capital gains tax due to the lack of a cost of acquisition.

Ultimately, the court found no merit in the appeal and dismissed it without any order as to costs. The judgment highlighted the significance of statutory provisions in determining the taxability of income, emphasizing the relevance of the specific legislative framework applicable during the relevant assessment year.