JUDGMENT
S.H. Kapadia, J.
1. Being aggrieved by the decision of the Tribunal, the Department has come by way of appeal under Section 260A of the Income-tax Act, 1961. The appeal concerns assessment year 1990-91. The following question of law has been referred to us in this appeal at the behest of the Department.
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in allowing the loss suffered on renouncing its rights entitlement to convertible debentures of Larsen and Toubro Ltd., ignoring the fact that the assessee was in receipt of Rs. 62,997 on account of sale of rights which was credited in the profit and loss account which was business income as these rights debentures were offered to the assessee in lieu of holding shares which were held as stock-in-trade and therefore any realisation/income which arose on account of stock-in-trade was definitely by way of income ?”
Facts :
2. For the assessment year 1990-91, the assessee claimed loss on the sale of rights debentures of Larsen and Toubro, amounting to Rs. 2,23,353 in its return of income. These rights debentures were issued to the assessee as the assessee was holding shares of Larsen and Toubro (hereinafter referred to, for the sake of brevity as the “old shares”). These old shares were held as stock-in-trade by the assessee. On the sale of the rights debentures, the assessee received Rs. 62,997, which was credited in the profit and loss account, The Assessing Officer took the view that since the assessee was holding the old shares as stock-in-trade, the assessee was not entitled to claim loss under the head “Capital gains”. The Assessing Officer took the view that since the assessee was holding the old shares as stock-in-trade, the question of capital loss under Section 45 did not arise. Being aggrieved by the decision of the Assessing Officer, the matter was carried in appeal before the Commissioner of Income-tax (Appeals). When the matter came before the Commissioner of Income-tax (Appeals), the assessee relied upon two judgments. In the case of Miss Dhun Dadabhoy Kapadia v. CIT [1967] 63 ITR 651, the Supreme Court was concerned with the question of valuation of new shares offered to a holder of old shares in a company with right to renounce. In that matter, the assessee had renounced the right and realised Rs. 45,262.50. This entire amount was sought to be taxed as capital gains to which the assessee objected on the ground that on issue of new shares, the value of her old shares depreciated from Rs. 253 per share to Rs. 198.75 and as a result of the said depreciation she had suffered a capital loss in the old shares to the extent of Rs. 37,630, which she was entitled to set off against the capital gain of Rs. 45,262.50. This was allowed by the Supreme Court. The assessee herein contended before the Commissioner of Income-tax that the judgment of the Supreme Court in the case of Dhun Kapadia [1967] 63 ITR 651 was applicable. However, the Commissioner of income-tax (Appeals) came to the conclusion that the said judgment of the Supreme Court in Dhun Kapadia’s case [1967] 63 ITR 651 was not applicable as the assessee in that case was an investor and the shares were held by way of investment and not as stock-on-trade, whereas in the present case, the shares were held as stock-in-trade and, therefore, the entire amount of Rs. 62,997 was taxable as profit. Therefore, the assessee relied
upon the judgment of the Bombay High Court in the case of CIT v. K. A. Patch [1971] 81 ITR 413. In the said judgment it has been held that whether the shares were held as investment or stock-in-trade, made no difference and the amount realised by the sale of rights should be set off by the amount of depreciation in the old shares on account of issuance of rights. That, for this purpose, the market rates of the shares-cum-right and ex-right immediately before and after the issue of the rights should be ascertained. The assessee relied upon this judgment of the Bombay High Court which was not accepted by the Commissioner of Income-tax (Appeals) on the ground that in the case of K. A. Patch [1971] 81 ITR 413 (Bom), the shares were valued at market price and not a cost. Consequently, the Commissioner of Income-tax (Appeals) dismissed the appeal filed by the assessee. Being aggrieved, the assessee preferred appeal to the Tribunal, which took the view that in view of the aforestated two decisions, the assessee should succeed. Consequently, the Tribunal allowed the appeal. Being aggrieved, the Department has come by way of appeal under Section 260A of the Income-tax Act to this court.
Findings :
3. In this case, as indicated by the facts mentioned hereinabove, the Commissioner of Income-tax (Appeals) came to the conclusion that the judgment of the Supreme Court in Dhun Kapadia’s case [1967] 63 ITR 651 and the judgment of the Bombay High Court in K. A. Patch’s case [1971] 81 ITR 413 were not applicable as the assessee had valued the old shares at market price. This finding is factually wrong. We have examined the balance-sheet, the profit and loss account and the computation tendered by the assessee before the Assessing Officer, which indicates that the old shares held as stock-in-trade were valued at cost and not at market price. Mr. R. V. Desai, learned senior counsel appearing on behalf of the Department, fairly conceded that the old shares were valued at cost and not at market price. He further stated that he had taken instructions from the Assessing Officer, who is present in court. In the circumstances, the judgment of the Bombay High Court in the case of K. A. Patch [1971] 81 ITR 413 is squarely applicable to the facts of this case.
Conclusion :
4. Consequently, the appeal filed by the Department is dismissed. No order as to costs.
5. Office is directed to hand over the R and P to Shri Mohan Das, the Assessing Officer concerned, after the judgment is signed. Office is directed to take an acknowledgment from the said Assessing Officer.