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TMI Blog2010 (1) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... , and 639/06 - - - Dated:- 11-1-2010 - S. H. KAPADIA and H. L. DATTU and DEEPAK VERMA JJ. Ajay Vohra , Ms. Kavita Jha , Sandeep S. Karhail and Manoj Swarup for the appellants. B.V. Bhattacharya, Naresh Kaushik and B.V. Balaram Das, for the respondent. Judgment: S. H. Kapadia J .- Heard learned counsel on both sides. 2. In this batch of civil appeals, the narrow issue which arises for determination is the nature of the loss suffered by the appellant(s) (assessee(s)) whether Rs. 2,43,750 was a short-term capital loss, as contended on behalf of the assessee(s), or whether the said loss was a long-term loss, as contended on behalf of the Revenue. 3. In the lead matter, being Civil Appeal No. 634 of 2006, we are concerned with the assessment year 1992-93 corresponding to the financial year ending March 31, 1992. 4. The assessee was a shareholder in Jindal Iron and Steel Company Limited ("JISCO", for short). The said company announced in January, 1992, an issue of 12.5 per cent. equity secured PCDs (partly convertible debentures) of Rs. 110 for cash at par to shareholders on rights basis and employees on equitable basis. The issue opened for subscription ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above question, we need to quote hereinbelow the relevant provisions of the Income-tax Act, 1961 ("Act", for short), having a bearing on the issue in dispute: "2.(29A) ' long-term capital asset' means a capital asset which is not a short-term capital asset. 2.(42A) ' short-term capital asset' means a capital asset held by an assessee for not more than thirty-six months immediately preceding the date of its transfer. 45.(1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54, 54B, 54D, 54E, 54F, 54G and 54H, be chargeable to income-tax under the head ' Capital gains' , and shall be deemed to be the income of the previous year in which the transfer took place. 48.(1) The income chargeable under the head ' Capital gains' shall be computed,- (a) by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto: Provided that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of long-term capital gain so arrived at relating to equity shares of venture capital undertakings,- (A) in the case of a company, other than venture capital company, thirty per cent. of the amount of such gain in excess of fifteen thousand rupees; (B) in the case of venture capital company, sixty per cent. of the amount of such gain in excess of fifteen thousand rupees; (C) in any other case, sixty per cent. of the amount of such gain in excess of fifteen thousand rupees; (ii) in respect of long-term capital gain so arrived at relating to capital assets other than capital assets referred to in sub-clauses (i) and (ia),- (A) in the case of a company, thirty per cent. of the amount of such gain in excess of fifteen thousand rupees; (B) in any other case, sixty per cent. of the amount of such gain in excess of fifteen thousand rupees: Provided that where the long-term capital gain relates to both categories of capital assets referred to in sub-clauses (i) and (ii), the deduction of fifteen thousand rupees shall be allowed in the following order, namely:- (1) the deduction shall first be allowed against long-term capital gain relating to the assets mentioned i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he strength of existing shareholding in the company, comes into existence when the company decides to come out with the rights offer. Prior to that, such right, though embedded in the original shareholding, remains inchoate. The same crystallizes only when the rights offer is announced by the company. Therefore, in order to determine the nature of the gains/loss on renunciation of right to subscribe for additional shares/debentures, the crucial date is the date on which such right to subscribe for additional shares/debentures comes into existence and the date of transfer (renunciation) of such right. The said right to subscribe for additional shares/ debentures is a distinct, independent and separate right, capable of being transferred independently of the existing shareholding, on the strength of which such rights are offered. 9. For the purposes of section 48 of the Act, one must keep in mind an important principle, namely, that chargeability and computation have to go hand in hand. In other words, computation is an integral part of chargeability under the Act. It is for this reason that we have opined that the right to subscribe for additional offer of shares/debentures comes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in another aspect. At the time of the issue of new shares, the appellant possessed 710 old shares and she also got the right to obtain 710 new shares. When she sold this right to obtain 710 new shares and realised the sum of Rs.45,262.50 she capitalised that right and converted it into money. The value of the right may be measured by setting off against the appreciation in the face value of the new shares the depreciation of the old shares and, consequently, to the extent of the depreciation in the value of her original shares, she must be deemed to have invested money in acquisition of this new right. A concomitant of the acquisition of the new right was the depreciation in the value of the old shares, and the depreciation may, in a commercial sense, be deemed to be the value of the right which she subsequently transferred. The capital gain made by her would, therefore, be represented only by the difference between the money realised on transfer of the right, and the amount which she lost in the form of depreciation of her original shares in order to acquire that right. Looked at in this manner also, it is clear that the net capital gain by her would be represented by the amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cum-right price per share on 3-1-1992 625 Less: Ex right price per share on 6-1-1992 425 Difference 200 1500 shares at Rs. 200 per share, i.e., 1500 x 200 (A) (-) 3,00,000 (-) 2,43,750 Nil Nil (b) Long-term: I. On 8460 equity shares of JSL: Sold on 7-8-1991 at Rs. 240 20,30,400 Less: Aggregate cost of acquisition 3,63,200 16,67,200 As per assessee As per Assessing Officer (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) II. On 7000 equity shares of Saw Pipes Ltd.: 16,80,200 Sold on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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