Calcutta H.C : the assessee incurred cost for DWs allotted to it under the scheme contained in the above letter of offer, and the said finding was not perverse

High Court Of Calcutta

Ganapati Enterprises vs. CIT

Section : 28(i), 45

Assessment Year : 1993-94

Girish Chandra Gupta And Tapash Mookherjee, JJ.

IT Appeal No. 147 Of 2003

February 3, 2014


1. The subject matter of challenge in this appeal is a judgment and order dated April 21, 2003, passed by the learned Income-tax Appellate Tribunal setting aside the order of the Commissioner of Income-tax (Appeals) and restoring the order of the Assessing Officer. Briefly stated the facts and circumstances of this case are as follows :

During the assessment year 1993-94, the assessee applied for 1,41,000 non-convertible debentures of Rs. 400 each issued by Gujarat Ambuja Cement Ltd. The application money was Rs. 12 each. The assessee in applying for 1,41,000 non-convertible debentures paid an application money of Rs. 16,92,000. However, only 82,863 non-convertible debentures were, in fact, issued to the assessee. Needless to mention, the excess amount paid by the assessee by way of application money was refunded to him. Therefore, the effective investment of the assessee in applying for 82,863 partly paid non-convertible debentures was Rs. 9,94,356. The aforesaid debentures were accompanied with detachable warrants which entitled the assessee to buy an equal number of shares at a rate to be fixed by the company. The assessee sold the partly paid-up non-convertible debentures at a loss of the application money. The buyer paid the balance amount. Upon such payment, the detachable warrants became tradable. Out of 82,863 detachable warrants, the assessee sold 13,000 detachable warrants at the rate of Rs. 55 each and, thus, realised a sum of Rs. 7,15,000. The balance 69,863 detachable warrants were retained by the assessee.

2. In the facts of the case, the assessee contended, as would appear from the order of the learned Tribunal, that as far as sale of partly paid up 82,863 units of “18.5 per cent. non-convertible debentures”, is concerned, “since the assessee transferred these units only on the consideration of the said ISL agreeing to pay the remaining unpaid amount, i.e., the call money, the entire application money, amounting to Rs. l2 per debenture and which worked out to aggregate of Rs. 9,94,356, constituted short-term capital loss. As far as the sale consideration of Rs. 7,15,000 received on sale of 13,000 “detachable warrants” is concerned, the assessee claimed that since the cost of acquisition of those detachable warrants is not ascertainable, the sale proceeds of these detachable warrants constitutes ‘capital receipts not liable to tax'”.

3. Both the contentions of the assessee were rejected holding that the application money for non-convertible debentures at Rs. 12 each was payable for acquisition of each detachable warrant. Therefore, the claim of the assessee that he had suffered short-term capital loss of a sum of Rs. 9,94,356 was disallowed. The assessee had retained the detachable warrants worth (69863 × 12) Rs. 8,38,356 and recovered a sum of Rs. 7,15,000 by selling 13,000 detachable warrants. Thus, the total receipt was (8,38,356 + 7,15,000) Rs. 15,53,356. After deducting the application money (15,53,356 – 9,94,356), a sum of Rs. 5,59,000 was earned which was treated as his business income.

4. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). He upheld the contentions of the assessee. The Revenue preferred an appeal before the learned Tribunal which reversed the order of the Commissioner of Income-tax (Appeals) and restored the order of the Assessing Officer.

5. It is against this order that the present appeal has been preferred.

6. Mr. Murarka submitted that the detachable warrants were received by the assessee at no cost and, therefore, could not have been taken as a taxable income. He contended that the investment of a sum of Rs. 9,94,356, spent in applying for 82,863 non-convertible debentures was a total loss and should have been, accordingly, allowed as the short-term capital loss of the assessee.

7. We are unable to see how can it be said that the detachable warrants were received by the assessee except at the cost of Rs. 12 subscribed by him.

8. Mr. Murarka drew our attention to a judgment of the Andhra Pradesh High Court in the case of Sri Krishna Dairy and Agricultural Farm v. CIT [1988] 169 ITR 291/[1987] 35 Taxman 151. He drew our attention to the headnote which reads as follows :

“Held, that the birth of calves was incidental to the business activity of the assessee and though it is difficult to visualise them as assets, as there was no cost of acquisition of the calves, the gains which arose on such sale were not liable to tax as capital gains.”

9. The aforesaid judgment, in our view, has no manner of application. In the case before the Andhra Pradesh High Court, the assessee was engaged in the business of rearing cows, which in course of time became pregnant and gave birth to calves. In the case before us, the assessee purchased the non-convertible debentures only for the purpose of obtaining the detachable warrants without intending to make any investment. The situation might have been different in case the assessee had invested the full amount of the non-convertible debentures for the purpose of earning interest at 18.5 per cent. per annum and would thereafter have been entitled to the detachable warrants free of cost. In that case, the assessee could have claimed the benefit of the ratio in the case of Sri Krishna Dairy & Agricultural Farm (supra). Since the facts of both the cases are altogether dissimilar, the views expressed by the Andhra Pradesh High Court can have no manner of application to the facts and circumstances of this case.

10. Mr. Murarka also drew our attention to an identical view in an identical fact taken by the Madhya Pradesh High Court in the case of Dy. CIT v. Smt. Suniti Singh [2008] 299 ITR 183. As already indicated, this decision can also have no manner of application to the case before us. This takes care of the submissions made by Mr. Murarka.

11. When the appeal was admitted the following four questions were framed :

“I. Whether the finding of the Tribunal that the non-convertible debentures (NCD) of Gujarat Ambuja Cement Ltd. (GACL) were not acquired or sold from the point of view of investment and/or in the course of investment by the assessee was justified and not perverse ?

II. If the answer to question No. 1 is in the affirmative and the NCDs are held to be acquisition and sale of business stock and not investment, whether the cost of or loss in respect of the NCDs could be held to be cost of acquisition of detachable warrants (DWs), held to be capital/investment asset by the Tribunal ?

III. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee incurred cost of Rs. 9,94,356 for DWs allotted to it under the scheme contained in the above letter of offer, and the said finding was not perverse ?

IV. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that there was pre-determined loss of Rs. 12 per non-convertible debenture on the sale thereof and that the transaction in the acquisition and sale thereof was solely and exclusively for the purpose of acquisition of detachable warrants and that, therefore, such pre-determined loss was in the nature of and/or must be predicated as cost of acquisition of such detachable warrants was justified and not perverse ?”

12. It would appear that the first question, the third and the fourth questions framed at the time of admission, are on the question as to whether the findings of the learned Tribunal are perverse. We have enquired of Mr. Murarka to show that as to how are the findings perverse, to which his reply was that the relevant evidence was ignored. We requested Mr. Murarka to find out from the memorandum of appeal any ground alleging that any particular piece of evidence was ignored by the Tribunal. He replied that there is no such ground taken in the memorandum of appeal. He has even otherwise not been able to satisfy us that the view taken either by the Income-tax Officer or by the learned Appellate Tribunal is otherwise than on the basis of the evidence. We are of the opinion that the view taken both by the Income-tax Officer and the Income-tax Appellate Tribunal is a reasonable view in the facts and circumstances of the case. The question which arises for determination is the third question. Rest of the questions are repetitive. We already have upheld the finding of the Tribunal and the question is accordingly answered against the assessee.

13. For the aforesaid reasons, this appeal is dismissed with costs to be assessed by the Department of this court.

[Citation : 365 ITR 480]