High Court Of Punjab & Haryana
Navin Jindal & Ors. vs. Assistant Commissioner Of Income Tax
Sections 2(29A), 2(42A), 45
Asst. Year 1992-93
N.K. Sud & Virender Singh, JJ.
IT Appeal Nos. 55 to 59 of 2002
11th August, 2005
Counsel Appeared
M.L. Garg & Akshay Bhan, for the Appellants : Dr. N.L. Sharda, for the Respondent
JUDGMENT
N.K. Sud, J. :
This order will dispose of five appeals, viz., IT Appeal Nos. 55 to 59 of 2002, involving common question of law and facts. All these appeals are directed against the common order of the Income-tax Appellate Tribunal, Delhi Bench “E”, New Delhi (for short “the Tribunal”), dt. 28th June, 2001, passed in the cases of these five appellants for the asst. yr. 1992-93.
2. Since the arguments were heard in IT Appeal No. 55 of 2002, the facts are being taken from that case. The assessee held 1,500 shares in M/s Jindal Strips Company. The company decided to issue rights shares and offered 1,875 rights shares at the rate of Rs. 100 per share with an option of renouncement. The assessee decided to renounce the rights shares in favour of M/s Colorado Trading Company at the rate of Rs. 30 per share. In this manner, he realised Rs. 56,250 from the renouncement. The assessee claimed that due to issue of new rights shares, there was a sharp fall in the market value of shares 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 AO allowed the adjustment of loss in the value of old shareholding against the amount received on renunciation of the right to receive rights shares in view of the judgment of the Supreme Court in Miss Dhun Dadabhoy Kapadia vs. CIT (1967) 63 ITR 651 (SC), 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. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A), who accepted the claim of the assessee that the loss was in the nature of short-term capital loss. The CIT(A) held that there is no inherent right with any shareholder to receive the bonus shares or rights shares. It accrues only when the company takes the decision for issuance of such shares. Thus, according to him, the right to receive rights shares was a short-term capital asset.
Aggrieved by the order of the CIT(A), the Revenue preferred an appeal before the Tribunal, which has been allowed vide the impugned order dt. 28th June, 2001, upholding the action of the AO in treating the loss to be in the nature of long-term capital loss. The findings of the Tribunal are contained in para 10 of the order, which reads as under : “10. After considering the rival submissions and the materials on the file, we are of the view that on the facts and in the circumstances of the case, the AO was justified in treating the capital loss as long-term capital loss and not short-term capital loss and the learned CIT(A) was wrong in directing the AO to treat the capital loss under the head “Short-term capital loss”. It is abundantly clear from the facts of the case and the ratio of the Supreme Court decision in the case of Miss Dhun Dadabhoy Kapadia vs. CIT (1967) 63 ITR 651 (SC) that the capital loss was allowed on account of fall in the market price of the old shares held by the assessee consequent upon the issue of rights shares. In fact the quantum of capital loss was also worked out with reference to the fall in the market value of the old shares consequent upon the issue of rights shares. It is also abundantly clear that on the renunciation of rights shares as such the assessee had not suffered capital loss rather he had made gain therefrom which gain was converted into capital loss after taking into account the fall in the market value of the old shares. In view of these clear facts it will be wrong to say that the loss was a short-term capital loss. The decisions relied upon by the learned Authorised Representative of the assessee do not apply to the facts of the present case.”
3. Mr. M.L. Garg, appearing on behalf of the appellant, contended that the right to receive bonus shares or rights shares arises only when the company decides to issue such shares and the date of acquisition of the original shares has no relevance for determination as to whether the rights shares or the bonus shares are a long-term capital asset or a short-term capital asset. In support of this contention, he placed reliance on the following judgments : (i) Miss Dhun Dadabhoy Kapadia vs. CIT (supra); (ii) CIT vs. K.A. Patch (1971) 81 ITR 413 (Bom); (iii) CIT vs. Chunilal Khushaldas (1974) 93 ITR 369 (Guj); (iv) Executor of the Will of Late Manecklal Premchand (Decd.) vs. CIT (1990) 81 CTR (Bom) 124 : (1990) 186 ITR 554 (Bom); and (v) Smt. Sanatkumar Jayantilal vs. CIT (1994) 117 CTR (Guj) 249 : (1995) 211 ITR 755 (Guj). Mr. Akshay Bhan, appearing on behalf of the appellants in IT Appeal Nos. 58 and 59 of 2002, reiterated the contentions raised by Mr. M.L. Garg. He further relied on the decision of the Calcutta High Court in CIT vs. Oberoi Building & Investment (P) Ltd. (1994) 118 CTR (Cal) 103 : (1993) 203 ITR 403 (Cal), in support of the contention that the loss in question was a short-term capital loss. Dr. N.L. Sharda, learned standing counsel for the Revenue, on the other hand, supported the findings of the Tribunal. He contended that the right to receive shares in a rights issue was a right which was embedded in the old shares held by the appellant and, therefore, it was acquired on the date when the old shares had been acquired. He pointed out that it was on the basis of this theory that the apex Court in Miss Dhun Dadabhoy Kapadia (supra), had allowed the adjustment of loss in the value of old shares towards the consideration received against renouncement of the right to receive the rights shares.
We have considered the rival contentions and have perused the authorities cited before us. We are satisfied that the view taken by the Tribunal is in conformity with the law laid down by the apex Court in Miss Dhun Dadabhoy Kapadia (supra). Counsel for the Revenue has correctly pointed out that the apex Court had allowed the adjustment of loss on account of fall in value of the old shares against the amount received on the renunciation of the right to receive rights shares on the ground that such right was embedded in the old shareholding which had matured when the decision was taken to issue the new shares. That being so, the question as to whether this right was a long-term or a short-term capital asset has to be decided on the basis of the period for which the old shares have been held. None of the authorities cited by counsel for the appellants support their case. In Miss Dhun Dadabhoy Kapadia (supra), the only issue for consideration before the Supreme Court was as to whether the loss in the value of old shares as a result of issue of new shares could be set off against the consideration for renouncing the rights shares or not. The question as to whether the gain or loss resulting therefrom was in the nature of long-term or short-term was not an issue in that case. Similar was the position in K.A. Patch (supra). In Chunilal Khushaldas (supra), Manecklal Premchand (supra) and Smt. Sanatkumar Jayantilal (supra), the Courts were dealing with cases where bonus shares allotted to the assessee had been sold. It was in that context that it has been held that bonus shares would not relate back to the date of issue of the original shares and for determination as to whether the same was a short-term capital asset or a long-term capital asset, the date of issue of the bonus shares was relevant.
In the present case, the transfer is not of the rights shares but of the right to receive the rights shares. Thus, what has to be determined is as to when the assessee had acquired this right. As already observed, the right had been acquired at the time of acquisition of the old shares. Had the assessee actually acquired the rights shares and thereafter sold these shares, then, certainly the date of issue of rights shares would have been the relevant date for consideration of the issue in dispute. A perusal of the judgment of the Calcutta High Court in the case of Oberoi Building & Investment (P) Ltd. (supra) no doubt shows that the capital gain arising on the sale of right to purchase the rights shares had been shown as short-term capital gain and assessed as such. However, no dispute had been raised by the Revenue about the nature of the capital asset. The Calcutta High Court, therefore, had no occasion to deal with the question as to whether the capital gain was short-term or long-term in nature. Thus, this judgment cannot be said to be an authority on the proposition that the date of the decision of the company to issue the rights shares is the date of acquisition of the right to receive the rights shares for determining as to whether such right is a long-term capital asset or a short-term capital asset. No other point has been raised. In view of the above, we find no merit in these appeals and dismiss the same. No costs.
[Citation : 280 ITR 608]
