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TMI Blog1992 (1) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... in both the cases. Simultaneously, it also issued new equity shares for the public. The assessee sold its right to purchase 29,000 right shares at Rs. 3.50 per right share. As these shares were held in the investment portfolio, the surplus of the sale proceeds over the cost, if any, was assessable as short-term capital gains. On the contrary, if the cost of the right shares sold exceeded the sale proceeds, the deficit would constitute short-term capital loss. The assessee found that the quotation of the shares of Messrs. East India Hotels Limited went down from Rs. 42.75 to Rs. 30.25 per share as a result of the issue of the aforesaid right shares and bonus shares. The depreciation in the value amounted to Rs. 12.50 per share. The assessee claimed that it suffered a short-term capital loss of Rs. 9 per share. The Income-tax Officer, however, did not agree with the said view of the assessee. He spread the cost of original shares held by the assessee over a large number of shares including the bonus shares. Thereafter, he calculated the depreciation in value at Rs. 5.37 per share. Out of the same, he attributed only one-third of the value to the right share. Thus, the Income-tax Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 100 shares on October 27, 1979. Therefore, by virtue of the resolution dated August 29, 1979, the said shareholder was entitled for 20 right shares and 20 bonus shares. After the issuance of right and bonus shares, the total holding of the shareholder would become 140 shares. The right and bonus price in the stock exchange was Rs. 42.75 on October 29, 1979. The ex-right bonus price in the stock exchange on October 29, 1979, was quoted at Rs. 30.25 per share. Therefore, the difference between the two, i.e., Rs. 12.50, was attributable to the right as well as the bonus shares. The right and bonus shares were issued in the same proportion. Under the circumstances, the value which the public at large dealing on the stock exchange determined for right and bonus shares at Rs. 12.50 per share was attributable to right as well as bonus equity. Under the said circumstances, Rs. 6.25 can be attributed to the value of the right and the same amount can be attributed to the value of bonus shares. Hence, the cost of the bonus shares would be taken at value of Rs. 12.50, i.e., Rs. 6.25 per share and the capital gain or loss would be determined on that basis. The Tribunal pointed out that the view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the actual cash received by the sale of the right to the new rights issue shares and deduct therefrom the cum-right value of the holding of the old shares, i.e., the amount realised by the sale of the right should be set off by the amount of the depreciation in the old shares on account of the rights issue of shares. For this purpose, the market rates of the shares cum-right and ex-right immediately before and after the issue of the rights shares should be ascertained. Dr. Pal, accordingly, submitted that, on the principle laid down by the Supreme Court, the assessee will gain further benefit or advantage. However, he has not challenged the finding of the Tribunal and he is prepared to accept the benefit given to the assessee by the Tribunal. We have considered the submissions of the learned advocates for the parties and the decisions cited from the Bar. In the case of Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651 (SC), the appellant held by way of investment 710 ordinary shares in the Tata Iron and Steel Company Limited. The company made an offer to her by which she was entitled to apply for 710 new ordinary shares at a premium with an option of either taking the shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share, together with the sum of Rs. 45,262.50. The net capital gain or loss to the appellant obviously would be the difference between the value of the capital asset and the cash in her hands after she had renounced her right and realised the cash value in respect of it, and the value of the capital asset including the right which she possessed just before these new shares were issued and before she realised any cash in respect of the right by renouncing it in favour of some other person. Thus, the Supreme Court pointed out that the value of the capital asset, after renouncement, would be 710 multiplied by Rs. 198.75 plus the sum of Rs. 45,262.50, while the value of the asset, immediately before the renouncement, would be 710 multiplied by Rs. 253, there being no cash value at that time of the right to be taken into account. Thus, according to the Supreme Court, the capital gain or loss would be worked out at Rs. 45,262.50 after deducting from it the sum worked out at 710 multiplied by the difference between Rs. 253 and Rs. 198.75. Accordingly, the net capital gain or loss would be determined by following the principle as laid down by the Supreme Court in the aforesaid case. In t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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