9911796707
TMI Blog2000 (5) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... re of KOEL at Rs. 60 per share at a future date (face value of Rs. 10 + premium Rs. 50). The assessee purchased 6,44,000 NCDs from KOEL in the month of March, 1993. These 6,44,000 NCDs were sold by the assessee to LIC Mutual Fund and GIC Mutual Fund for Rs. 4.94 crores. The transaction resulted in a loss of Rs. 1,49,98,400 to the assessee, which amount has been claimed by the assessee as a short-term capital loss. The Assessing Officer has mentioned in the assessment order that whereas in a letter dated 23-3-1996 filed before him the assessee had stated that the debentures were initially acquired in order to get benefit of detachable warrants entitling to subscribe to the shares of the company; but in the working of the short-term capital loss, the assessee claimed full value of Rs. 100 as cost of debentures without attributing any value to the two detachable warrants which were retained by the assessee because only debentures were sold. The Assessing Officer, therefore, asked the assessee as to how the cost of one debenture could be taken at Rs. 100 when two detachable warrants were enclosed with it and why no cost factor had been attributed to these two warrants. The assessee inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs. 65, the Assessing Officer computed the short-term capital gain at Rs. 75,41,600 as against short-term capital loss of Rs. 1,49,98,400 computed by the assessee. 4. On appeal, the CIT (Appeals) substantially endorsed the views of the Assessing Officer and held that the warrants had 'value' all the time. He assumed that the warrants gave a right to the holder to purchase the shares of a 'very reputed company' like KOEL at less than market price. This assumption itself was based on the assumption that KOEL share prices will continue to rise. He ignored the fact that it did not happen (he decided the appeal in August, 1996) even upto 1998 and the assessee allowed the warrants to lapse. He accordingly confirmed the order of the Assessing Officer. Aggrieved by the orders of the authorities below, the assessee is in appeal before us. 5. Shri S.N. Inamdar, the learned counsel for the assessee submitted that no cost can be attributed to warrants, which were intended as inducements, notwithstanding the fact that both the parties to the contract acknowledged that Rs. 100 paid was the price paid for the debenture (which is a form of loan) and full Rs. 100 was to be repaid as a loan and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e taken into consideration while computing the capital gains. He referred to the decision of the Gujarat High Court in CIT v. Vania Silk Mills (P.) Ltd [1977] 107 ITR 300 wherein it was held, "that any right therein appearing in section 2(14) takes in all kinds of rights". He further referred to the decision of the Karnataka High Court in Syndicate Bank Ltd. v. Addl CIT [1985] 155 ITR 681 wherein it has been held that the term 'capital asset' has an all embracing connotation. He further relied upon the judgment of the Supreme Court in A.R. Krishnamurthy v. CIT[1989] 176 ITR 417 and submitted that in this case it was held that mining rights are capital assets. He particularly drew our attention to page 420 of the judgment. He further relied upon the judgment of the Madras High Court in the case of R. Naresh v. CIT [1998] 145 CTR 327 and submitted that in this case it was held that right to receive bonus is a valuable right. Similarly, the Calcutta High Court in CIT v. Tushar Commercial Co. Ltd. 230 ITR 918 has held that right shares are a valuable right. He further stated that the issue hat been concluded in favour of the department by the decision of the Punjab High Court in Hari B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, volatile and inchoate right and not an existing right. It cannot be acquired at the time of allotment by paying an identifiable price or cost. In fact, a tradeable warrant/coupon is a sweetner with a debt instrument like NCDs or PCDs to improve the marketability of the main instrument. It is an incentive or inducement for ascribing to original NCDS. Such an incentive/inducement has no acquisition value before section 55(2)(aa)(iiia) was brought on the statute book by the Finance Act, 1995 with effect from 1-4-1996. In the case of CIT v. Modiram Laxmandas (P.) Ltd., the Hon'ble Bombay High Court held that quota rights and import licences which are given as incentive have no cost of acquisition. The Hon'ble High Court further held that the asset must possess the inherent quality of being available on the expenditure of money to a person seeking to acquire it before it can be subject to capital gains. The warrants have no such inherent quality as they cannot be acquired at the time of allotment by paying an identifiable price or cost for it. If a person wants to acquire a NCD, he has to pay full price of Rs. 100 whether he wants the warrants or not. Further it must be noted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raging the cost to arrive at cost of bonus shares stands on a totally different footing and is not comparable with the point at issue in the present case. Firstly, the original shares and bonus shares are not issued simultaneously and it is nobody's case that when shares are purchased for a cost, its cost should be reduced because there is a possibility of bonus issue in future. In fact, if a share is sold cum-bonus, the cost will remain what was paid for the original shares and even consideration cannot be split though admittedly the ex-bonus price is always less than the cumbonus price. 11. Secondly, bonus shares (though called 'bonus') are not issued as an incentive or inducement for subscribing to original shares. An equity shareholder's right to capitalisation of profits and bonus share is merely a manifestation of that right in the form of a separate share certificate. 12. Thirdly, when the Supreme Court considered the various methods for ascertaining the cost of bonus share, it took into account the fact that every equity share is pregnant with bonus possibility and hence cost incurred for acquiring original shares can legitimately be spread over the bonus shares also as t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
