9911796707
TMI Blog2023 (10) TMI 1431X X X X Extracts X X X X X X X X Extracts X X X X ..... been disputed by the Revenue nor the quantum of fall in value of original shares so arrived has been disputed by the Revenue. Facts of the present case are pari-materia with fact of the case before K.A. Patch [ 1970 (2) TMI 39 - BOMBAY HIGH COURT ] wherein the preposition laid down in case of Miss Dhun Dadabhoy Kapadia [ 1966 (10) TMI 52 - SUPREME COURT ] has been followed and it has been held that it would make no difference where the shares are held as stock in trade or as an investment as the profits have to be worked out in a commercial sense taking into account the relevant accounting principles. In the instant case, the business profits have to be ascertained by ascertaining the excess of the amount of appreciation in the face value of the new shares which would be the sale proceeds of the right to the new rights shares over the amount of depreciation in the old shares which would be the same as the difference between the cum-right market value and the ex-right market value of the old shares. The assessee has rightly computed the same where right renunciation premium on 64688 rights have been determined at Rs 7781760 and depreciation in the value of the old shares have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General Mills Ltd. due to renunciation of its rights. The AO held that this was only a notional loss and was not allowable for the purpose of calculating the total income of the assessee. Accordingly, the AO issued a notice under section 148 dt. 06/02/1997 and proceedings were reopened u/s 147 of the Act. 4. During the reassessment proceedings, notices were issued and submissions were called for and matter was discussed with Ld. Counsel for the Assessee and the AO following the findings in A.Y. 1995-96 disallowed the claim of the assessee for carry forward of capital loss of Rs. 2,04,41,885/-. The AO refer to the assessment order for A.Y. 1995-96 wherein it was held that it was only a notional loss and that the assessee was a trader in share and therefore the income / loss earned by the assessee company by transaction in shares is to treated as business income. 5. The assessee carried the matter in appeal before the Ld. CIT(A)-1, Ludhiana. The Ld. CIT(A), Ludhiana referred to the order passed by his predecessor for A.Y. 1995-96 dt. 23/11/1998 and following the same held that the applicant was not a trader in share but the shares were held by it as investment and therefore the gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The calculation of loss suffered by appellant was as under: Right renunciation premium received on 64848 Rights @ Rs. 120 per right i.e. 64848 x 120 Less Fall in Value of relatable 129696 original Rs. 77,81,760/- Share @ Rs. 210 per share i.e. 129696 x 210 Rs. 2,72,36,160/- Rs. 19454400/- The Assessing Officer disallowed the loss claimed by the Appellant on the basis of the findings recorded in the assessment year 1995-96 by holding that it was only a notional loss and also that the appellant was a trader in shares, whereas in the case before Hon'ble Supreme Court, the person was an investor in shares, and hence the judgment of Apex Court was distinguishable on facts. In this regard, the appellant has placed reliance on the following judgments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness or profession and not under the head capital gain and that the same was not to be set off against the brought forward capital loss. While holding so, the Coordinate Bench taken into consideration the paper book filed by the assessee as well as the application under section 158A considering that the issue stands covered against the assessee by the order of the Tribunal in assessee s own case for A.Y. 1995-96. Accordingly, the application filed by the assessee under section 158A was also accepted and it was held that since the matter for A.Y. 1995-96 is pending in the High Court, the decision of the Hon ble High Court or of the Hon ble Supreme Court on the issue in A.Y. 1995-96 will also be applicable for A.Y. 1993-94 and 1994-95 as agreed by the parties before it. During the course of hearing, the Ld. AR stated at the BAR that the matter is still pending adjudication before the Hon ble High Court for A.Y. 1995-96 and therefore as on the date of the present hearing, the order so passed by the Tribunal dt. 15/05/2006 continues to remain valid. 9. Further, against the subsequent order of the Ld. CIT (A) dt. 08/05/2006, the Revenue moved a separate appeal before the Tribunal. The C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in dispute before the CIT(Appeals), who vide his order dated 3.3.03 decided the issue in favour of the assessee. The Tribunal in the appeal of the revenue set aside the order of the CIT(Appeals) and held that the income/set off derived by the assessee under the head 'capital gain' was assessable as income under the head income from business or profession'. Thus, the assessee was held to be a dealer in share and the sale of shares was held to be on revenue account. This position continues to prevail presently also. Both the parties, therefore, agreed that the issues raised in the present appeal are required to be adjudicated in the light of the prevailing legal position holding the field in view of the decision of the Tribunal for the assessment year 1993-94 in ITA Nos. 437 438/Chandi/03 dated 18.5.2006. 4. The learned counsel for the assessee submitted that he would be satisfied if the matter is restored back to the file of the Assessing Officer to consider the loss claimed by the assessee in its return under the head 'capital gains' in accordance with the order of the Tribunal. As a result, I set aside the order of the CIT(Appeals) and direct the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of non-convertible portion of debentures due to fall in value of shares of Vardhman Spinning and general Mills Ltd, in accordance with and in consequence of the decision of the Hon'ble Tribunal in assessee's own case for the impugned assessment year. Accordingly, the AO rightly held that the loss on fall in value of equity shares of M/s Vardhman Spinning and General Mills being notional in nature will not be allowed to the assessee under the head 'capital loss' as the assessee is trader in shares. The loss or gain to be allowed will be under the head 'Income from business profession', and will be allowed when there is actual transfer of shares, since there has been no actual transfer of shares, and it is only a notional loss has and therefore, even under the head 'Income from business profession' there is no loss arising due to fall in the value of shares. It is not to be allowed as a 'capital loss' in any case, as the appellant has been held to be a trader in shares by the Hon'ble ITAT. The reliance placed by the AR on the case of Miss. Dhun Dadabhoi Kapadia vs. CIT 1967 (063) ITR 0651 (SC) dated 31.10.1996 and by the decision in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determine the specific grievance of the assessee. 13. During the course of hearing, the Ld. AR submitted that given the litigation history of the assessee, the limited issue which is now before the Tribunal is whether the assessee should be allowed the carry forward of business losses of Rs. 1,94,54,400/- or not. 14. It was submitted that the Ld. Assessing officer, in order dated 28.12.2007, held that, The loss on fall in value of equity shares of M/s. Vardhman Spinning General Mills being notional in nature will not be allowed to the assessee under the head Capital loss as the assessee is trader in shares. In this case, as there has been no transfer, it is just a notional loss and therefore, there will be no loss even under the head Income from business and profession of Rs. 19454400/- arising due to loss of fall in value of equity shares of M/s. Vardhman Spinning General Mills Ltd , 15. The Ld. CIT (A) also upheld the action of the AO on the ground that the assessee did not sell any shares and as a result business loss is notional and cannot be allowed. 16. It was submitted that the Ld. CIT (A) erred in holding so as the calculations reproduced above clearly reflect that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeds. In the case of capital gains the excess is a gain in the capital, whereas in the case of business profits, the excess is a revenue profit, but none the less, basically, both are profits. Of course, the fact whether it is capital gain or business profit merely affects the incidence and the rate of tax and the actual amount of tax may vary because of that reason, but the method of calculating the actual amount does not very and is the same. We do not see any distinction which makes a difference between the facts in the case before us and those before the Supreme Court in Dhun Kapadia's case. We are, therefore, bound by the principles laid down by the Supreme Court in that case and we propose to decide this reference on the basis of those principles . CIT vs. Motichand Construction Co. Pvt. Ltd., (2003) 261 ITR 70 (Bom) The Hon'ble Bombay High Court following its own judgment and that of Hon'ble Supreme Court (both cited above) held that the assessee will be entitled to loss which occurred due to renunciation of rights. ACIT vs. Acropolish Investments Ltd, (2010) 328 ITR 664 (Guj) The position therefore is that for the year under consideration in a case where rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed the fall in value of old shares as cost of acquisition of rights or shares renounced in view of the judgment of the Supreme Court in Miss Dhun Dadabhoy Kapadia v. CIT(supra)and accepted the contention of the assessee that there was a net capital loss to the tune of Rs. 2,43,750. However, he held that the loss was in the nature of long-term capital loss and not short-term capital loss as claimed by the assessee. Thus, the department itself accepted the view point of the various Hon'ble Courts of the country and allowed the loss to the appellant in this case. However, in the assessee's case under appeal the department has taken a different stand though such stand is in divergence with the facts of the case and the law (as applicable to the assessment year under consideration) crystallized by the Hon'ble Supreme Court and followed by different High Courts and also the department itself. CIT vs. Oberoi Building and Investment Pvt. Ltd., (1994) 203 ITR 0403 (Cal) The net capital gain or loss to the assessee 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used to regularly deal in shares of various companies which were traded by him as his stock in trade. The relevant stock which was under consideration were 1750 original shares of Tata Iron and Steel Co. Ltd. (TISCO) which the assessee had purchased before beginning of the accounting year and which were held by him as his stock in trade. The assessee s practice was to account for shares held by him as his stock in trade at actual cost from year to year and he does not value the holding of the stock at the market price but continue to carry forward his holding from year to year at its original cost. During the relevant period, the TISCO came out with a right issue wherein the existing share holders were offered right to subscribe one new share for every five existing shares held by them. The assessee under the terms of the offer had a right to subscribe for 350 new shares of the right issue by paying Rs. 75 of the Face Value of each of the new share or to renounce the right and sell his right to the new shares. The assessee exercised the option to sell his right to subscribe to the 350 new shares offered to him and realised a sum of Rs. 27,500/-. In his assessment, the assessee init ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts in the said case wherein the assessee, who was not a dealer in shares, held by way of investment 710 ordinary shares in the Tata Iron and Steel Co. Ltd. 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 or renouncing them, wholly or partly, in favour of others. The assessee renounced her right to all the 710 new shares and realised Rs. 45,262.50. The department sought to tax the whole sum of Rs. 45,262.50 as a capital gain. The assessee, however, contended that on the issue of the new shares the value of her old shares depreciated, since the market quotation of the old shares which was Rs. 253 per share immediately before the issue of the new shares fell to Rs. 198.75 immediately after the issue of the new shares and that as a result of this depreciation she suffered a capital loss in the old shares to the extent of Rs. 37,630 and that she was entitled to set off that loss against the capital gain of Rs. 45,262.50. She contended that, in the alternative, her right to receive the new shares was a right which was embedded in her old shares and, consequently, when she realised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res together with her renouncement of the right to receive new shares and make some money thereby, could only be properly computed in the manner indicated by us above. In the alternative, the case can be examined 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. 45,26250 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 in 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 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exist but it makes no difference because in the case of both capital gains and revenue profit the amount is ascertained by deducting the cost price from the sale proceeds. In case of capital gains the excess is a gain in the capital whereas in the case of business profits the excess is a revenue profit but nonetheless both are profits. Of course the fact whether it is a capital gain or business profits merely affects the incidence and the rate of tax and the actual amount of tax may vary because of that reason but the method of calculating the actual amount does not vary and is the same. 25. In the instant case as the matter stands as of date and held by the Coordinate Benches (Supra), the assessee had purchased the shares of M/s Vardhman Spinning General Mills not as investment but for the purpose of sale at profit, the share so dealt are held as stock in trade and the profit derived from the sale of such shares was therefore a revenue receipt liable to Income Tax under the head income from business or profession and not under the head capital gain . At the beginning of the F.Y relevant to the impugned assessment year, the assessee was holding 1,77,866 equity shares of M/s Vardhm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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