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TMI Blog1998 (6) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... e orders of the six appeals. As the facts of all the six appeals are identical, a single consolidated reference has been made by the Tribunal. The main order of the Tribunal being in I.T.A. No. 102/PN of 1982, in the case of Mrs. Sulakshana S. Chowgule, the facts of that case have been set out in the statement of the case. The material facts of Sulakshana Chowgule's case are as follows : The assessee is an individual. The controversy pertains to the assessment year 1977-78, the corresponding previous year being the year ended March 31, 1977. During the above previous year, the assessee sold certain irredeemable preference shares held by her in Messrs. Chowgule and Co. Pvt. Ltd. to two investment companies. The sale of these shares was made in July, 1976, and the assessee incurred a loss of Rs. 68,236 as a result thereof. The case of the assessee before the Income-tax Officer was that such shares were acquired by her on September 30, 1971, and since the sale was affected in July, 1976, i.e., within a period of 60 months from the date of acquisition, the loss was a short-term capital loss which she was entitled to set off against her income falling under other heads. The Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redeemable preference shares sold by the assessee were merely another form of equity shares which were already in existence. In support of this contention, reliance was placed by the Revenue on the decision of the Madras High Court in CIT v. G. Narasimhan [1979] 118 ITR 60, wherein it was held that the reduction of capital would not involve any transfer because the shareholders remained the same. The assessee, however, relied on the decision of the Andhra Pradesh High Court in Addl. CIT v. Trustees of H. E. H. the Nizam's Second Supplementary Family Trust [1976] 102 ITR 248. The Tribunal accepted the contention of the assessee and held that there was an exchange of earlier equity shares for the new equity shares and preference shares on September 30, 1971, which amounted to transfer and that the assessee acquired preference shares only on September 30, 1971, and not before that. The Tribunal also held that the preference shares were not the same as equity shares because the rights and liabilities attached to the former were quite different from the rights and liabilities attached to the latter. The Tribunal, therefore, held that there was no question of the assessee acquiring the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated September 30, 1971, and so there was no question of acquiring preference shares prior to that date. It was further contended that there was an exchange of equity shares held by the assessee by a new set of shares including the irredeemable preference shares in question by resolution of the company dated September 30, 1971. Reliance was placed in support of this contention on the decision of the Andhra Pradesh High Court in Nizam's Second Supplementary Family Trust's case [1976] 102 ITR 248. We have carefully considered the rival submissions. The controversy in this case is whether the irredeemable preference shares issued by the company pursuant to its resolution dated September 30, 1971, are different from the equity shares in lieu whereof they were issued and whether they can be deemed to have been held by the assessee from the date of their issue or from the date of issue of the equity shares in lieu whereof they were issued. This controversy assumes importance because if the date of the issue of the irredeemable preference shares is regarded as the date of the acquisition of these shares by the assessee, the loss suffered by the assessee by the transfer thereof would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach be sub-divided into three shares of Rs. 33-1/3 each." "Resolved further that of every six such sub-divided shares held by each shareholder, one sub-divided share shall be called "A" equity share and shall have rights attached thereto as mentioned hereinafter, one sub-divided share shall be called "B" equity share and shall have rights attached thereto as mentioned hereinbefore, three sub-divided shares shall be called "C" equity shares and shall have rights attached thereto as mentioned hereinafter and one sub-divided share shall be called 4 per cent. irredeemable cumulative preference share and shall have rights attached thereto as mentioned hereinafter." As a result of the above resolution, in exchange for 1,425 equity shares held by the assessee in the above company, the assessee received, in addition to the equity shares of different types, 712, 4 per cent. irredeemable cumulative preference shares with the distinct right attached thereto. The assessee also got another 4,000, 4 per cent. irredeemable preference shares of Rs. 33-1/3 each on another partial partition of the family which took place on March 29, 1972, bringing her total acquisition of such shares to 4,712 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence share capital. The rights and obligations attached to the two kinds of share capital are different. On the face of the above provisions of the Companies Act, it is not possible to hold that the equity shares held by the assessee since 1965 and the irredeemable preference shares acquired by the assessee in exchange therefor pursuant to the resolution dated September 30, 1971, were the same. That being so, the preference shares in question cannot be said to be acquired by the assessee prior to September 30, 1971, the date on which they came into existence. In fact, consequent to the resolution dated September 30, 1971, the equity share capital held by the assessee was exchanged for the three new types of equity shares and the irredeemable preference shares in question. It was not a case of change of nomenclature of the shares. It was an exchange of one kind of shares for another kind of shares, having different rights and liabilities. We are supported in our above conclusion by the decision of the Andhra Pradesh High Court in Nizam's Second Supplementary Family Trust [1976] 102 ITR 248, the decision of this court in Manecklal Premchand v. CIT [1990] 186 ITR 554 and the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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