9911796707
TMI Blog2023 (10) TMI 1431X X X X Extracts X X X X X X X X Extracts X X X X ..... as not 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of M/s Vardhman Spinning & 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 inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... top of para 2:- "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." 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. CIT (A) and held that the income derived by the assessee was assessable under the head "income from business 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under the head 'capital gains' was held to be assessable as an income under the head income from business and profession'. This aspect was carried 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned year, the Hon'ble ITAT set-aside the order of the CIT (A) and directed the AO to consider the set-off and carry-forward of the loss claimed by the assessee on account of sale 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 trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before us. It is therefore for the third time, the matter has travelled to the Tribunal and it was therefore essential to lay down the litigation history as we have noted above in order to 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 grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal gains whereas the case before us is of business profits. Now, in our opinion, it is a distinction which does 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 form the sale proceeds. 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 judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s already held by him. In this process, the value of his old shareholding depleted and resulted in a loss of Rs. 3 lakhs. He claimed this loss against the price of Rs. 56,250 realised on account of renouncement of his rights for issue of rights shares and claimed the balance loss of Rs. 2,43,750 as "short-term capital loss" The Ld.AO in the above noted case 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submitted that there is no infirmity in the findings of the Ld. CIT (A) and therefore the appeal filed by the assessee deserves to be dismissed. 20. We have heard the rival contentions and pursued the material available on record. In case of CIT Vs. K.A. Patch (supra), the relevant facts before the Bombay High were as follows. In that case, the assessee an individual was carrying on business as a share broker wherein he 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 exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re to rank pari passu with the existing old ordinary shares and that a shareholder who exercised his right to subscribe to the appropriate number of shares offered to him would have to pay Rs. 75 per share to the company, that being the face value of each share. 22. Further the Hon'ble Bombay High Court referred to the decision of Hon'ble Supreme Court in case of Miss Dhun Dadabhoy Kapadia Vs. CIT (Supra) and referred to the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 45,262.50 after deducting from it the sum worked out at 710 multiplied by the difference between Rs. 253 and Rs. 198.75. This last amount comes to a little more than the sum of Rs. 37,630 which the appellant claimed should be deducted from Rs. 45,262.50 in computing her capital gain. The claim made by the appellant was thus clearly justified because the net capital gain by her in the transaction, which consisted of issue of new shares 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kapadia Vs. CIT (supra) and there appears to be no distinguishing features and held that it was bound to apply principles laid down by the Hon'ble Supreme Court. 24. Further, referring to the contention of the DR wherein he sought to make distinction that the case of Miss Dhun Dadabhoy Kapadia Vs. CIT (supra) was a case of capital gain whereas the case before us is of business profit. The Hon'ble High Court held that it is a distinction which does 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 Vardhm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orked out in a commercial sense taking into account the relevant accounting principles. 27. 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 determined at Rs 27236160/- and the net business loss of Rs 1,94,54,400/- has been claimed to be carried forward. 28. In light of aforesaid discussions and in absence of any contrary authority of the jurisdictional High Court or that of the Supreme Court brought to our notice, we do not see a reason but to follow the preposition laid down by the Bombay High Court in case of CIT Vs. K. Patch (supra). We accordingly set-aside the order so passed by the ld. CIT (A) and allow the ground of appeal so raised by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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