Income Tax Appellate Tribunal - Delhi
Medicare Investments Ltd. vs Joint Commissioner Of Income Tax on 30 November, 2007
Equivalent citations: [2008]304ITR44(DELHI), (2007)112TTJ(DELHI)889
ORDER
P.M. Jagtap, A.M.
1. This Special Bench has been constituted by the Hon'ble President for considering and deciding the following question which incorporates the only issue arising from the appeal of the assessee which is directed against the order of learned CIT(A)-XV, New Delhi, dt. 13th Feb., 2001:
On the facts and in the circumstances of the case, the learned CIT(A) has erred in upholding the order of the learned AO in respect of the disallowance of Rs. 1,57,95,000 on account of loss on sale of debentures.
2. The relevant facts of the case giving rise to the controversy are as follows. The assessee is an investment company which filed its return of income for the year under appeal on 19th Nov., 1996 declaring a total income at a negative figure i.e. loss of Rs. 2,07,98,394. In the said return, income from interest and dividend was shown by the assessee at Rs. 1,24,68,142 and Rs. 16,19,488, respectively whereas loss on sale of debentures was shown at Rs. 1,57,94,206. In Sch. 8 to the balance sheet and P&L a/c filed alongwith its return of income giving the details of significant accounting policies and notes to accounts, the following note was given in this context as item No. 5:
During the year the company was allotted 1,95,000, 12.5 per cent secured redeemable NCDs of Rs. 250 each (with detachable warrants) of Max India Ltd. The NCDs (without warrants) were sold in terms of letter of offer at the rate of Rs. 169 each. The difference between face value of NCDs (with warrant) and sale value (without warrant) has been treated as loss on shares of debentures and warrants have been taken at nil value. The warrants will entitle the company to apply for and be allotted one equity share of Max India Ltd. at a price to be calculated at a discount of 33 per cent on the prevailing market price or at a price of Rs. 225, whichever is less, anytime between the period of 24-48 months from the date of allotment or earlier as may be decided by the board of Max India Ltd.
3. During the course of assessment proceedings, it was explained on behalf of the assessee company before the AO that it was allotted 1,95,000 number of 12.5 per cent secured redeemable NCDs of Rs. 250 each with detachable warrant of Max India Ltd. in their right issue which had opened on 29th Dec, 1995 and closed on 29th Jan., 1996. It was pointed out that the detachable warrant attached with the NCD made the assessee entitled to apply for and be allotted one equity share each of Max India Ltd. at discount on the prevailing market price or a price of Rs. 225, whichever is less, and this right to apply and get allotted the equity shares was going to be made available anytime between 24 to 48 months from the date of allotment of NCDs or earlier as may be decided by the board of directors of Max India Ltd. The price for the said shares on allotment was to be paid fully by the allottees. It was also pointed out that the said warrants were detachable which means the NCD could be sold separately after detaching the said warrants. As per the terms and conditions of the said issue, Max India Ltd. i.e. the allottee (sic) company was stated to have finalized arrangement with M/s Infrastructure Ltd. Leasing & Financial Services (IL&FS) whereby an option was given to the successful allottees to sell the NCDs allotted to them without warrants at a price of Rs. 169 per NCD. It was also provided that the said option was to be exercised by the applicant at the time of filing the application itself and the applicants opting for such option would be required to pay only an amount of Rs. 81 per NCD as application money as against Rs. 250 otherwise payable by the applicants not exercising the said option. On successful allotment, the allottees exercising the said option were not required to pay anything further since the balance amount of Rs. 169 per NCD was to be received by Max India Ltd. directly from IL&FS on behalf of the allottees against the sale of NCDs. The assessee having exercised the said option was required to pay only Rs. 81 per NCD on application whereas the balance amount of Rs. 169 was stated to be paid by IL&FS on its behalf as consideration for sale of NCDs on successful allotment. Since the consideration received by the assessee company on sale of NCDs on allotment was Rs. 169 per NCD as against a face value of Rs. 250 each, it claimed to have suffered a total loss of Rs. 1,57,95,000 i.e. Rs. 81 per debenture on sale of 1,95,000 debentures.
4. The claim of the assessee for a loss suffered on sale of debentures was examined by the AO during the course of assessment proceedings. In this context, he referred to the terms of the prospectus as also the offer made by Max India Ltd. for NCDs with detachable warrants and after reproducing such terms relevant in this context in his assessment order and after examining the same, the following inference was drawn by him in para Nos. 2.2.6 to 2.2.8 of his assessment order:
2.2.6 Let us at this stage, first of all examine the terms of the issue. From reading of the terms of issue extracted above, it is clear that the investors are given two options:
Regd. Application No. of equity No. of NCDs Scheme A : Applicants
Folio Form No. shares held as offered who do not opt for buy
(Column 2) on 06.12.1995 (Column 4) back of NCD(s)
application money @ Rs.
250 per NCD
Scheme B : Applicants
who opt for buy back of
NCD(s) application
money @ Rs. 81 per NCD
Amount Paid Block IV
No. of No. of Total No. of Scheme A @ Rs. Scheme B @ Rs. 81/-per
NCDs additional NCDs applied 250 per NCD NCD
accepted NCDs applied for Block III
for Block II
Scheme A: applicants who do not opt for buy back of NCDs, application money at the rate of Rs. 250 per NCD.
Scheme B: applicants who buy back of NCDs, application money Rs. 81 per NCD.
2.2.7 It follows, therefore, that the investor right from the beginning, opting for Scheme B, is aware of the product he is purchasing and the price he is paying. Here, the product is the warrant and the price is Rs. 81. Because of the tripartite agreement as referred to in para 2.2.1, the NCD part automatically is purchased by IL&FS for Rs. 179 i.e. Rs. 250-81. So, the transaction results in no acquisition of NCD by the investor, in this case, the assessee, at all. Whatever may be the arrangements which the transaction has been gone through, one has to look at the very essence of the transaction. The essence of the transaction here. is that, if the investor opts for Scheme A, he gets two products, namely, one combined price warrant, plus NCD for Rs. 250, but, if he opts for Scheme B, he gets only one product i.e. the warrant, for Rs. 81 and the other product, the NCD is given to IL&FS for Rs. 179.
2.2.8 There is no transaction suggestive of the assessee selling NCD to IL&FS for Rs. 179 at a loss of Rs. 81. Therefore, the warrant cost is to be taken at Rs. 81 only and not nil, as canvassed by the assessee. In sum, the claim of the assessee is erroneous and is rejected.
On the basis of the aforesaid findings/observations recorded in the assessment order, it was held by the AO that the claim of the assessee for loss on sale of debentures at Rs. 1,59,95,000 was not allowable. Accordingly, he disallowed the same in the assessment completed vide his order dt. 10th Dec, 1998 under Section 143(3).
5. Aggrieved by the order of the AO, an appeal was preferred by the assessee company before the learned CIT (A) and it was submitted on its behalf before him that in terms of letter of offer dt. 8th Dec., 1995 of Max India Ltd., each NCD had a face value of Rs. 250 and the same was attached with one detachable warrant. It was submitted that each warrant made the holder entitled to apply for and be allotted one equity share of Max India Ltd. at a price which was to be calculated at a discount of 33 per cent on the prevailing market price or Rs. 225, whichever is less, anytime between the period of 24 to 48 months from the date of allotment of NCDs. It was pointed out that if the right attached to the warrant had not been exercised by the holder thereof within the period specified by Max India Ltd., the entitlement for the shares was liable to be automatically lapsed. It was also clarified that the warrant holders exercising their option for allotment of equity shares were not entitled to seek any appropriation of the amount paid on the NCDs against the amount payable for the equity shares which was to be paid in full separately. It was contended that the said warrants thus were completely detachable from the NCDs and the holder of the NCDs was entitled to sell the NCDs separately after detaching such warrants. It was also contended that since the purchase price, face value as well as redemption price of the said NCDs was Rs. 250 each, the same was rightly taken as cost of acquisition by the assessee and the loss resulted in the sale of the said NCDs by taking the said cost of acquisition was allowable in the hands of the assessee.
6. The aforesaid submissions made on behalf of the assessee company, however, did not find favour with the learned CIT(A) and he proceeded to uphold the action of the AO in disallowing the claim of the assessee for loss on sale of NCDs for the following reasons given in para No. 4 of his impugned order:
4. I have carefully considered the matter. To my mind, the AO's order suffers from no infirmity on this count. The AO has correctly observed that the entire arrangement was preconceived. I find that the AO has discussed this issue in a comprehensive manner and has correctly arrived at the finding that the cost of the warrant is to be taken at Rs. 81 only and not nil. I am in agreement with the arguments given by the AO in the assessment order. Accordingly, this ground is decided against the appellant company. The disallowance of loss on sale of debentures of Rs. 1,57,95,000 is upheld.
Aggrieved by the order of the learned CIT(A) confirming the disallowance made by the AO as aforesaid, the assessee company has preferred this appeal before the Tribunal.
7. The learned Counsel for the assessee submitted before us that the assessee company was a shareholder of Max India Ltd. and being the holder of the said shares, a right offer was received by it from the said company. He invited our attention to a copy of letter of offer received from Max India Ltd. placed at page Nos. 18 to 46 of his paper book in connection with the said right offering 12.5 per cent secured redeemable non-convertible debentures (NCDs) of Rs. 250 each for cash at par along with detachable warrants on right basis in the ratio of one NCD for every 5 equity shares held to the existing equity shareholders. He took us through the relevant terms of the said right issue offered by Max India Ltd. and explained the salient features of the said offer as was done on behalf of the assessee before the authorities below as well. He pointed out that two options were given to the existing shareholders by the said offer and in both these options, the face value of NCDs offered by Max India Ltd. was Rs. 250 each. He submitted that the detachable warrant to be issued along with the said NCD, however, was not assigned any value and the same thus was allotted without any extra cost to the existing shareholders. He contended that the cost of acquisition of NCD to the assessee thus was Rs. 250 each whereas the cost of acquisition of the detachable warrants was nil for all purposes including the purpose of computation of profit/loss on sale of the said instruments. In support of this contention, he relied on the provisions of Section 55(2)(aa)(iiia) and submitted that although the said provisions are applicable in the context of computation of capital gain, a similar analogy can be applied for computing the profit/loss on sale of shares in the preset case which is chargeable to tax under the head "Profits and gains of business or profession" by taking the cost of acquisition of detachable warrant at nil and consequently, the cost of acquisition of NCDs at Rs. 250 each.
8. The learned Counsel for the assessee also contended that the investment was made by the assessee company in NCDs on payment of a price of Rs. 250 each and since the face value of the said NCDs was also Rs. 250 each, the same ought to have been accepted as cost of acquisition of the NCD in its hand. He submitted that this is the actual legal effect of the transactions whereby the NCDs were acquired by the assessee company of Max India Ltd. and the same cannot be ignored. He submitted that even though the said NCDs were sold by the assessee company to IL&FS at a price of Rs. 169 each, the said price could not be treated as cost of acquisition to the assessee ignoring the legal effects of the relevant transactions as done by the authorities below. He contended that even though the price paid by IL&FS for purchase of the NCDs from the assessee was Rs. 169 each, what they actually got were the NCDs of the face value of Rs. 250 each and as a result of the said acquisition, IL&FS became entitled for interest @ 12.5 per cent on the face value of Rs. 250 itself. According to him, had the assessee company not exercised the option of transferring the NCDs to IL&FS, it would have shown the cost of acquisition of NCDs at Rs. 250 each being its face value whereas the cost of acquisition of detachable warrant would have been taken at nil. He submitted that the said transfer of NCDs by the assessee company to IL&FS was possible only after allotment of the NCDs to it and it was thus a case of acquiring the said NCDs first at Rs. 250 each and then transferring the same to IL&FS at Rs. 169 each. He contended that the said transfer of NCDs, thus, had resulted in a loss of Rs. 81 per NCD and the said loss having been actually suffered by the assessee company, the same was rightly claimed by it.
9. The learned Counsel for the assessee also submitted that the similar issue has already been decided by the Delhi 'D' Bench of Tribunal in the cases of Abhinandan Investments Ltd. and Ors. vide its common order dt. 5th June, 2000 in ITA No. 1949/Del/1999 and the said decision rendered by the Tribunal has been confirmed by the Hon'ble Delhi High Court by a common judgment reported in CIT v. Abhinandan, Investment Ltd. (2001) 171 CTR (Del) 64 : (2002) 25 ITR 538 (Del). On a perusal of the said judgment, it was noted by the Bench that the appeals filed by the Revenue against the orders of the Tribunal involving a similar issue have been dismissed by their lordships of Delhi High Court observing that no question of law arose from the orders of the Tribunal. The learned Counsel for the assessee, therefore, was directed by the Bench to address the arguments regarding the binding nature of the said judgment of the Hon'ble jurisdictional High Court dismissing the appeal at the threshold under Section 260A in the light of recent decision of Ahmedabad Special Bench of Tribunal in the case of Mirma Industries Ltd. v. Asstt. CIT (2005) 95 TTJ (Ahd) (SB) 867 : (2005) 95 LTD 199 (Ahd)(SB). The learned Counsel for the assessee in this regard relied on the decision of Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. v. Dy. CIT stating that the effects of the decision of Hon'ble High Court dismissing the appeal on the ground that no question of law arises have been considered and explained by their Lordships. He submitted that it has been held in this context by the Hon'ble Gujarat High Court that dismissal of tax appeal by the High Court holding that no substantial question of law arises implies that the order of the Tribunal on the issue stands merged in the order of the High Court and for all intents and purposes, it is the decision of the High Court which is operative and which is capable of being given effect to. He then invited our attention to the decision of Hon'ble Delhi High Court in the case of Abhinandan Investment Ltd. (supra) to point out that the relevant facts of the case were duly discussed and considered by the Hon'ble High Court and on appreciation of facts, the decision of the Tribunal was upheld observing that no substantial question of law arose from the orders of the Tribunal. He contended that the decision so rendered by the Hon'ble Delhi High Court in the case of Abhinandan Investment Ltd. (supra) thus, is operative and this Special Bench is also bound by the same. In support of this contention, he also relied on the decision of Hon'ble Delhi High Court in the case of CIT v. Achal Investments Ltd. (2004) 187 CTR (Del) 475 : (2004) 268 ITR 211 (Del) and Hon'ble Rajasthan High Court in the case of CIT v. Shree Barkha Synthetics Ltd. .
10. The learned Counsel for the assessee then took us through the decision of Hon'ble Delhi High Court in th.e case of Abhinandan Investment Ltd. (supra) to point out that the issue involved as well as facts relevant thereto involved in the said case are similar to that of the present case. He submitted that the option-B given by Max India Ltd. in connection with allotment of NCDs which has been exercised by the assessee in the present case is similar to the one involved in the case of Jindal Equipment Leasing & Consultancy Services Ltd. decided by the Tribunal vide its common order dt. 5th June, 2000 (supra) and affirmed by the Hon'ble Delhi High Court and since the terms of the issues involved in both the cases were also almost similar, the issue in fact stands squarely covered in favour of the assessee by the decision of Hon'ble Delhi High Court in the case of Abhinandan Investment Ltd. (supra). He submitted that in the case of Abhinandan Investments Ltd. (supra), the price to the extent of Rs. 111, in fact, was initially attributed by the assessee himself to the warrant. The same, however, was subsequently changed on sale of NCDs claiming the loss on account of difference between the face value of NCD and selling price thereof. He contended that the assessee in the present case, on the other hand, has throughout assigned the full price of Rs. 250 to NCDs which makes his case stronger than that of Abhinandan Investments Ltd. (supra).
11. The learned Departmental Representative, on the other hand, submitted that there cannot be a precedent on factual issues and when the appeal is dismissed by the Hon'ble High Court on the ground that it was a question of fact and no substantial question of law arose, there is no ruling of the High Court from which ratio can be drawn. He submitted that the decision of Hon'ble Delhi High Court in the case of Abhinandan Investments Ltd. (supra) is distinguishable on facts also inasmuch as different facts were involved in the said case as compared to the facts involved in the present case. He submitted that for instance the price of share for which the warrant holder was entitled to receive had been fixed at Rs. 200 each in the case of Abhinandan Investments Ltd. (supra) and the same was not dependent on the market price of the said shares at the time of allotment whereas in the present case, the same was dependent on the market price prevailing at the time of allotment. He submitted that the investment in warrant thus was made by the assessee in the case of Abhinandan Investments Ltd. (supra) not for earning/making any profit whereas such profit element was involved in the present case.
12. The learned Departmental Representative submitted that the provisions of Section 260A and Section 261 of the IT Act, 1961 clearly restrict the appeals only to the question of law before the Hon'ble High Court and Hon'ble Supreme Court, respectively, and thus, in other words, the ultimate authority in regard to question of facts lies with the Tribunal, irrespective of Articles. 133 and 136 dealing with civil appeal and SLP, respectively. This is apart from powers under Articles. 226 and 227. Relying on the decisions of Hon'ble Supreme Court in the cases of Chunilal V. Mehta & Sons Ltd. v. Century Spinning & Mfg. Co. Ltd. , Mahindra & Mahindra Ltd. v. Union of India AIR 1979 SC 798 and Panchugopal Barua v. Umesh Chandra Goswami , he contended that the findings of fact, however erroneous, cannot be disturbed by the High Court in exercise of the powers under Section 260A.
13. As regards the decision of the Hon'ble High Court of Gujarat in the case of Nirma Industries Ltd. v. Dy. CIT (supra) cited by the learned Counsel for the assessee, the learned Departmental Representative submitted that the Hon'ble High Court has mainly referred to the decisions of the Hon'ble Supreme Court of India dealing with doctrine of merger and while discussing the same, it has been observed that the Hon'ble Supreme Court can grant special leave before the appeal is heard whereas there is no such procedure in the case of High Court. In this regard, he referred to the provisions of Sub-Sections (3) and (4) of Section 260A and submitted that the mandatory procedure laid down therein of formulating the question of law before the appeal is heard, itself suggests that the due process of appeal being taken for decision on merits arises only after the question of law is formulated by the Hon'ble High Court. He contended that if the appeal is disposed of by the Hon'ble High Court under Section 260A holding that no question of law arises, it is akin to turning away the petitioner at the threshold without having been allowed to enter in the appellate jurisdiction of the Court and the doctrine of merger does not apply in such a case. In support of this contention, he relied on the decision of Hon'ble Supreme Court in the case of Kunhayammed v. State of Kerala . He contended that it is thus clear that unless question of law is involved, there is no question of hearing the appeal or rendering the decision on the merits of the case and doctrine of merger has either no application or limited application.
14. As regards the limited application of doctrine of merger, the learned Departmental Representative contended that the order of the lower Court/forum merges in the order of the higher Court/forum only to the extent of items/issues considered and decided by the higher Court/forum and the portion of the order of the lower Court which was not subject-matter of the appeal before the higher Court does not merge in the order of the higher Court. In support of this contention, he cited the following case law:
(i) Karsandas Bhagwandas Patel v. G.V. Shah ITO ;
(ii) CIT v. Sakseria Cotton Mills Ltd. ;
(iii) Alok Paper Industries v. CIT ;
(iv) CIT v. R.S. Banwarilal ;
(v) Smt. Ganga Devi and Ors. v. CWT ;
(vi) Addl. CIT v. India Tin Industries (P) Ltd. ;
(vii) CIT v. Travancore Tea Estates Co. Ltd. ;
(viii) Hindustan Aluminium Corporation Ltd. v. CIT ;
(iX) Central Indian Insurance Co. Ltd. v. ITO ;
(x) Kalooram Tirasilal v. ITO .
15. The learned Departmental Representative contended that the ratio of the decision of the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. v. By. CIT (supra) rendered relying on the doctrine of merger in any case is applicable only to the extent so far as question of law is concerned. As regards question of fact is concerned, the Hon'ble Gujarat High Court does not seem to have expressed any particular opinion.
16. On merits of the issue involved in the present case, the learned Departmental Representative contended that a right to subscribe for shares is a "capital asset" as held by Hon'ble Punjab & Haryana High Court in the case Hari Bros. (P) Ltd. v. ITO . He submitted that a detachable warrant giving the holder thereof such a right cannot be said to be of no value in the facts and circumstances of the case, especially when the said warrant made the holder thereof entitled to acquire one share for each of such detachable warrant at reduced value in comparison to the market value. He contended that the said dividend warrant thus had certain value and the assessee cannot be allowed to take the value of such a detachable warrant at nil for the purpose of taxation. Relying on the decision of Hon'ble Supreme Court in the case of Miss Dhun Dadabhoy Kapadia v. CIT , he contended that in working out capital gain or loss, the principles that have to be applied are those which are a part of the commercial practice or which an ordinary man of business will resort to when making computation for his business purpose.
17. The learned Departmental Representative submitted that the assessee actually retained the detachable warrant only because of the inherent valuable right vested therein which entitled him to translate the right into monetary terms i.e. subscribing the share at lower value than the market value of such shares. He explained such monetary translation and benefit arising to the assessee on the basis of following illustrations:
Scenario (i):
If market value of share is Rs. 1,000 Assessee gets it for Rs. 670 (being 33% less)/for Rs. 225 (whichever is less).
Thus benefit of Rs. 775 [i.e. Rs. 1,000(-) Rs. 225] Scenario (ii): If market value of share is Rs. 225
Assessee gets it for Rs. 151 (being 33% less)/for Rs. 225 (whichever is less).
Thus benefit of Rs. 74 [i.e. Rs. 225(-) Rs. 151] The learned Departmental Representative submitted that the assessee thus, was assured of the minimum benefit of Rs. 74 per detachable warrant and the same could have been derived by the assessee even on the next day of sale of NCDs as the period of 24-48 months could have been preponed by the allotting company as per scheme.
18. The learned Departmental Representative submitted that as per the terms and conditions of the scheme, each NCD of face value of Rs. 250 could be offered for sale to IL&FS @ Rs. 169 and this fact by itself was sufficient to show that the detachable warrant had been valued at Rs. 81 and the said value was collected in the form of application money from the applicants opting Option B. He submitted that the question is as to why the assessee sold the NCD @ Rs. 169 though the face value of such a NCD was Rs. 250 and the answer is simple and plain that the real value of such a NCD, stripped of detachable warrant, was Rs. 169 only which becomes, further, clear from the fact that under Scheme A, applicant had to pay Rs. 250 for getting the NCD and the detachable warrant both whereas under Scheme B, applicant had to pay Rs. 81 only for retaining the detachable warrant. He contended that if the value of the detachable warrant was nil as claimed by the assessee, then what was the compulsion for the assessee to spend Rs. 81 for acquiring the same. According to him, the offer for allotment of NCD along with detachable warrants by Max India Ltd. thus was very simple in the sense that every eligible person was to be allotted detachable warrants @ Rs. 81 and NCDs @ Rs. 169 and the terms of payment of application were decided according to the option he exercised. He contended that the detachable warrant thus, was valued at Rs. 81 even though no value was separately assigned to detachable warrant as a matter of scheme and this position was quite clear from the scheme of offer itself as rightly analyzed by the AO.
19. The learned Departmental Representative contended that the taxing authorities cannot put on blinkers while looking at the documents produced before them and they are entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents as held by Hon'ble Supreme Court in the case of CIT v. Durga Prasad More . He also relied on the decision of Hon'ble Supreme Court in the case of Sumati Dayal v. CIT to contend that the matter has to be considered in the light of human probabilities. In this context, he submitted that there are many questions arising in the present case relating to the claim of the assessee which cannot be answered applying the test of human conduct and probabilities such as:
(a) Why the assessee under Scheme B (buy back scheme) is subsidizing the buyer i.e. IL&FS for an amount of Rs. 81? Because, neither he is buying NCD (as he is selling it to IL&FS) nor he is paying for NCD (as IL&FS is paying for the NCD).
(b) Can this be said that the same NCD costed to IL&FS @ Rs. 169 but, it costed to the assessee @ Rs. 250? Certainly not, because the stripped NCD valued at Rs. 169 whereas the detachable warrant bearing NCD costed Rs. 250. Thus, shall this still be wrong to say that the detachable warrant is valued at Rs. 81?
(c) Why the NCDs shall be issued as rights issue to the shareholders if, the applicants are going to suffer loss? Can there be an intention on the part of such a company to cause loss to the applicants? If so, why will the existing shareholders bite the cake? Can the unsuspecting assessee be called naive enough to suffer such a huge loss at the hands of such a company?
The learned Departmental Representative contended that the aforesaid questions would certainly show that the issue is not the same as presented to be by claiming the loss and the claim of detachable warrant being of nil value is not only beyond commonsense but also negates the fundamentals of accounting and finance.
20. The learned Departmental Representative submitted that the face value of an instrument is a misnomer in the world of security market because the intrinsic value of any security has nothing to do with the market value of the security. He explained that a security with face value of Re. 1 can command market price of Rs. 1500 and vice versa. He submitted that the face value thus, is not absolute in itself and it has connotations to the market forces as well, on the day of transaction. According to him, the market value of NCD may be much less or more than the face value and the face value is relevant only for the purpose of calculating interest, etc. which comes in picture only at the time of redemption. He contended that a definite benefit, in any case, was guaranteed to the assessee in the form of entitlement to get shares of the company against detachable warrants at a price which was to be lower than the market price and this benefit was certainly paid for by the assessee as is evident from the terms of the scheme itself. In support of this contention, he relied on the order of the Tribunal in ITA No. 1121/Del/2000 as well as in the case of Tamik Investment & Trading Ltd. v. Jt. CIT (2005) 94 TTJ (Del) 489 : (2006) 281 ITR (Del)(AT). He prayed that the orders of the authorities below on disallowance of Rs. 1,57,95,000 on account of loss on sale of debentures may be confirmed.
21. In the rejoinder, the learned Counsel for the assessee submitted that there was no material difference in the facts of the assessee's case and the facts involved in the case of Abhinandan Investments Ltd. (supra). He submitted that only cosmetic or superficial difference has been pointed out by the learned Departmental Representative to distinguish the said decision. He submitted that the price for Rs. 81 paid by the assessee in the present case is certainly not the cost paid for acquiring the warrant or the shares to be allotted.
22. We have considered the rival submissions in the light of material available on record and the judicial pronouncements cited at the Bar. The issue involved in the present case relates to the allowability of loss claimed to have been incurred by the assessee on sale of NCDs. As pointed out by the learned Counsel for the assessee, a similar issue had come up earlier for consideration before the Tribunal in many cases and in one of such cases of Mohair Investment & Trading Co. (P) Ltd. v. Jt. CIT decided by Delhi 'A' Bench of Tribunal vide its order dt. 30th Jan., 2004 in ITA No. 1121/Del/2000, a similar issue involving identical facts was decided in favour of the assessee holding that the price of Rs. 250 each was entirely paid by the assessee for acquiring NCD and there was no price allocated to the detachable warrant. It was also held that the sale of NCDs at Rs. 169 each thus, had resulted in a loss of Rs. 81 per NCD which was rightly claimed by the assessee as revenue loss. For this conclusion drawn in the case of Mohair Investment & Trading Co. (P) Ltd. (supra), reliance was placed by the Tribunal on its earlier decision in the case of Abhinandan Investments Ltd. and Ors. (supra) which had been subsequently approved by the Hon'ble Delhi High Court in (2001) 171 CTR (Del) 64 : (2002) 254 ITR 538 (Del) (supra) and it was thus, held by the Tribunal that the issue stood squarely covered by the said decision of Hon'ble jurisdictional High Court.
23. When the present case involving a similar issue and identical facts was heard by the Division Bench, reliance again was placed on behalf of the assessee on the aforesaid decision of the Tribunal in the case of Mohair Investment & Trading Co. (P) Ltd. (supra) in support of its stand pointing out that a similar issue involving identical facts has been decided by the Tribunal in the said case in favour of the assessee relying on the decision of Hon'ble Delhi High Court in the case of Abhinandan Investments Ltd. and Ors. (supra), affirming the decision of the Tribunal rendered in the said cases on a similar issue. On perusal of the decisions rendered by the Tribunal as well as Hon'ble Delhi High Court in the said cases, the Division Bench, however, was of the opinion that the facts involved in the said cases were materially different from the facts involved in the present case and after discussing the same, the Division Bench expressed a view that the reliance of the Tribunal in the case of Mohair Investment & Trading Co. (P) Ltd. (supra) on its earlier decision in the case of Nalwa Investment Ltd. and Ors., as stated to be affirmed by the Hon'ble Delhi High Court to decide a similar issue as involved in the present case, was misplaced and the same was reguired to be reviewed by a larger Bench. A reference, therefore, was made by the Division Bench to Hon'ble President of Tribunal for constitution of Special Bench and, accordingly, the present case has been referred by the Hon'ble President to this Special Bench for considering the same issue.
24. The issues which thus, are required to be considered by this Special Bench in the present case are as under:
(i) Whether the issue involved in the present case as well as facts relevant thereto are identical to that of Abhinandan Investments Ltd. and Ors. (supra) decided by the Delhi Bench of Tribunal and affirmed by the Hon'ble Delhi High Court?
(ii) If the answer to question No. (i) is in affirmative, whether the decision of Hon'ble Delhi High Court dismissing the appeal filed by the Revenue against the aforesaid order of the Tribunal passed in the case of Abhinandan Investments Ltd. and Ors. (supra) holding that no substantial question of law arose is a decision on merit and constitutes, a binding precedent which this Special Bench is bound to follow?
(iii) If the answer to question Nos. (i) or (ii) is negative, the issue involved in the present appeal as incorporated in the question referred to by the Hon'ble President to this Special Bench will have to be decided on merits.
25. As regards the first issue as to whether the facts involved in the present case are similar or not to the case of Nalwa Investment Ltd. and Ors. (supra), it would be relevant to compare all the material facts relevant to the issue under consideration as involved in both the cases. In this regard, the learned Counsel for the assessee has filed a chart giving such comparison which is extracted below:
CIT v. Abhinandan Investment Ltd and Ors. Medicare Investment Ltd
(supra)
Right issue of JISCO Right issue of Max India Ltd
Right issue of 10 5 per cent redeemable Right issue of 12 b per cent secured
NCDs with a detachable warrant redeemable non-convertible debentures
with a detachable warrant
Face value of NCD = Rs 500 Face value of NCD = Rs 250
Detachable warrant entitled the holder to Detachable warrant entitled the
holder to
apply for one equity share of JISCO with a apply for one equity share of Max
India Ltd
face value of Rs 10 at a premium of Rs 190 with a face value of Rs 10 at a pnce
to be
per share calculated at a discount of 33 per
cent on
the prevailing market price or at a
price of
Rs 225, whichever is less
Application money for this right issue Rs Application money for this right
issue - Rs
111 per NCD and allotment money-Rs 89 per NCD and allotment money - Rs 169
389 per NCD per NCD
JISCO made arrangements with UTI Max India Ltd made arrangements with
Infrastructure Leasing & Financial
Services
Ltd (IL&FS)
Allottee of the NCD could surrender the Allottee of the NCD could surrender the
NCD to the UTI who would pay the NCD to the IL&FS who would pay the
allotment money of Rs 389 and secure the allotment money of Rs 169 and secure the
NCD while the detachable warrant would NCD while the detachable warrant would
remain with the applicant remain with the applicant
Payment was made by UTI to JISCO on Payment was made by IL&FS to Max India
behalf of assessee Ltd.
The UTI had agreed to this airangement to The arrangement with IL&FS was open for
the extent of Rs 350 crores and did not all without any monetary limit
restrict only for the promoters
Assessee sold 2/3rd of detachable warrants Assessee companies claimed Rs 81 as cost
@ Rs 20 per share Assessee in the return of debentures and claimed capital loss as
of income claimed the difference of Rs 91 short-term capital loss, on sale of
(Rs 111 - Rs 20) per detachable warrant as debentures to IL&FS
short-term capital loss However, in appeal
proceedings before CIT(A), the assessee
claimed Rs 111 as cost of debentures and
claimed capital loss as short-term capital
loss, on sale of debentures to UTI
The above claim of the assessee was
allowed by the Tribunal and also accepted
by the Delhi High Court
26. The learned Departmental Representative, on the other hand, has made a similar exercise by preparing two comparative charts in an attempt to make out a distinction between the facts involved in the present case and the facts involved in cases of Nalwa Investment Ltd. (supra) and Abhinandan Investment Ltd. (supra), two of the five assessees whose appeals were disposed of by the Tribunal by a consolidated order which was upheld by the Hon'ble Delhi High Court. The said two charts are reproduced below:
Medicare Investments Ltd. Nalwa Investments Ltd. ITA No.
1948/Del/1999 (and others)
Made a claim of loss on sale of debenture, Assessee first claimed loss on sale of
being business loss. detachable warrants. Later on claimed loss
on sale of NCDs before CIT(A)
Allotting company offered NCDs with Allottee came out with NCD scheme of
detachable warrants who opted for Scheme face value of Rs. 500 Rs. 111 on
application
A, had to pay Rs. 250. For Scheme B, and Rs. 389 to payable on allotment.
allottees had to pay Rs. 81 on application
and Rs. 169 was paid by IL&FS as the
allottees sold the NCD to it. In both cases,
detachable warrants were held by the
allottees
Appellant treated cost of detachable Each NCD had one detachable warrant
warrant as NIL thus, difference of Rs. 250 attached. Assessee first claimed loss on
and Rs. 169 i.e.Rs. 81 treated as business sale of detachable warrants. Later on,
loss. claimed loss on sale of NCDs before CIT(A).
All the five assessee companies were used
by the allotting company, to hold shares in
other companies
Allotting company had given loans to
certain companies who provided funds to
these 5 companies to buy NCDs of the
allotting company So, the issue was,
whether the allotting company was using
its own funds and in the meanwhile
creating fictitious loss?
Medicare Investments Ltd. (supra) Abhinandan Investments Ltd. (supra)
Made a claim of loss on sale of debenture, The facts of the case are squarely
different
being business loss from the facts of Medicare Investments Ltd.
These differences are being enumerated by
way of oral submissions but the questions
as referred to the Hon'ble High Court and
verdict thereon are submitted as under :
Allotting company offered NCDs with The following questions were posed for
detachable warrants who opted for Scheme adjudication:
A, had to pay Rs. 250. For Scheme B, (a) Whether the Tribunal is correct in
law in
allottees had to pay;Rs. 81 on application directing the AO to allow deduction of the
and Rs. 169 was paid by IL&FS as the losses of Rs. 111 per NCD as business loss?
allottees sold the NCD to it. In both cases,
detachable warrants were held by. the
allottees.
Appellant treated cost of detachable (b)Whether the Tribunal was correct in
warrant as NIL thus, difference of Rs. 250 holding that the assessee company sold the
and Rs. 169 i.e. Rs. 81 treated as business NCDs to the UTI as a consideration the UTI
loss. paid Rs. 389 per debenture to JISCO and in
turn the assessee's transferred the NCDs in
the name of the UTI?
(c) Whether the NCDs were subscribed by
the assessee-company as stock-in-trade or
capital investment?
(d) Whether the NCDs held by the assessee
company were as stock-in-trade so as to
entitle it to claim the loss as business
loss?
(e) Whether the amount of Rs. 111 per NCD
amounts to forfeiture of capital or is to be
treated as business loss?
(f) Whether the order of the Tribunal is
perverse on facts and in law?
Held : So far as question No. (c) is
concerned, it is to be noted that such a
question was not even urged before the
Tribunal by the Revenue. It was not under
its consideration. Similar is the position as
regards question No. (d).
Coming to the rest of the questions, no
question of law, much less a substantial
question of law, arises out of its order.
127. Keeping in view the comparative analysis as furnished by both the sides and the submissions made by them in the light of such comparison as well as taking note of the distinguishing features attempted to be pointed out by the Division Bench in their referral order, we now proceed to consider and decide this basic issue as to whether the facts involved in the present case are similar to the cases of Abhinandan Investments Ltd. and Ors. (supra) as held by Delhi 'A'. Bench of Tribunal in the case of Mohair Investment & Trading Co. (P) Ltd. (supra) or there is any material difference as pointed out by 'G' Bench in the ireferral order passed in the present case and also argued by the learned 'Departmental Representative at the time of hearing before us. The first distinction sought to be made out is that in the cases of Abhinandan Investments Ltd. and Ors. (supra), the claim of the assessee for loss of Rs. 111 per NGD was not disallowed on the ground that the said amount of Rs. 111 stated to be paid for each NCD was actually the price paid for acquisition of detachable warrant and it was thus nobody's argument in that case that the sum of Rs. 111 should be treated as the price paid by the assessee companies for acquisition of detachable warrants as has been the stand taken by the Revenue in the present case. In this regard, it is observed that the claim originally made by the assessees in the said cases was that a sum of Rs. 111 paid as application money for each NCD actually: represented cost of each detachable warrant and since the detachable warrant was transferred at a price of Rs. 20, the difference of Rs. 91 per detachable warrant was claimed to be loss suffered by the assessee. This claim of the assessee, however, was not accepted by the AO since, he was of the opinion that the. amount of Rs. 111 paid by the assessee as application money for each NCD actually represented the part of the total price of Rs. 500 payable for each NCD and the actual cost of detachable warrant as per the scheme itself was nil. The stand taken by the Revenue in the said cases thus right from the beginning was that the detachable warrant was received by the assessee gratis without any consideration.
28. After having held that the cost of acquisition of each NCD by the assessee was Rs. 500, the alternative claim of the assessee of having incurred a loss of Rs. 111 per NCD on sale thereof at Rs. 389 per NCD, however, was still disallowed by the AO as well as the learned CIT (A). It is no doubt true that the reasons given for disallowing the said loss claimed by the assessee were different Inasmuch as it was never the case of the Revenue that the cost of acquisition of NCD in the hands of the assessees was only Rs. 389 and the remaining amount of Rs. 111 was attributable to the cost of detachable warrant. However, the fact remains to be seen is that the claim of the assessees as originally made in the said cases was that the amount of Rs. 111 per NCD paid by them actually represented cost paid for each detachable warrant and the remaining amount of Rs. 389 was the cost actually paid for acquiring each NCD. This claim of the assessee, however, was not accepted by the Revenue authorities by taking a stand that the cost of acquisition of each NCD was Rs. 500 and the detachable warrant was received gratis without any consideration as per the scheme itself. It cannot therefore, be said that it was nobody's case that the sum of Rs: 111 should be treated as the price paid by the assessee companies for acquisition of detachable warrants As a matter of fact, this was the case made out originally by the assessees themselves while claiming loss on sale of detachable warrants at Rs. 20 each which was not accepted by the Revenue.
29. Before the Tribunal, the issue raised no doubt was relating to the claim of the assessee for loss of Rs. 111 per debenture and having already taken a stand that the entire amount of Rs. 500 paid by the assessee was on account of cost of acquisition of debenture, it was not argued on behalf of the Revenue that the sum of Rs. 111 paid by the assessee should be treated as the price paid for acquiring detachable warrant. Nevertheless, the Tribunal considered the salient features of the right issue of NCDs alongwith detachable warrants as approved by SEBI and also took note of the claim originally made by the assessee before the AO which was subsequently changed as a result of stand taken by the Revenue that out of the sum of Rs. 500 paid by the assessee in terms of the said right issue, nothing was attributable to detachable warrant which was received gratis without any extra/separate consideration. The Tribunal also considered the difference basis on which the claim of the assessee for loss of Rs. 111 on sale of debenture was disallowed by the AO as well as by the learned CIT(A) and found no substance or merit in such basis by passing a well reasoned and well discussed order. Thereafter, the Tribunal also considered and discussed the terms of the said right issue in para No. 25 of its order and on such consideration and discussion, it was held by the Tribunal that the true legal effect of the relevant transaction has to be seen for the purpose of income-tax assessment and not the entries made in the books of account or claim made in the return of income. Ultimately, the Tribunal accepted the claim of the assessee for loss of Rs. 111 per debenture as arising from sale thereof to UTI and thereby held that as per the scheme of allotment, the cost of acquisition of each debenture was Rs. 500 whereas the warrant was received by the assessee gratis without any cost of acquisition which was the true legal effect of the relevant transaction. In these circumstances, we find it difficult to accept that the aspect of attribution of part of the price paid by the assessee as per the scheme of allotment towards cost of detachable warrant was not there before the Tribunal or that the Tribunal had no occasion to consider the same. In any case, the scheme of allotment involved in the said cases before the Tribunal was almost identical to the scheme in the present case and when one definite stand was taken by the Revenue consistently in the said cases on a similar issue involving almost identical terms of allotment, it cannot be permitted to change that position in other cases without there being any material difference in the facts and to say on the basis of such change in the position taken by them that the earlier decision rendered by the Tribunal on a similar issue involving almost identical facts is not applicable.
30. The other distinction sought to be made out is on the basis of two options given to the investors by the offer letter issued in the present case vis-a-vis the only one option stated to be given in the cases of Abhmandan Investments Ltd. and Ors. (supra), It is pointed out that in the case of Abhinandan Investments Ltd. and Ors. (supra), the NCDs were offered at a face value of Rs. 500 each and as per the terms of payment given in the offer document, a sum of Rs. 111 was payable on application whereas the remaining amount of Rs. 389 was payable on allotment. There was an arrangement made by the issuing company with UTI whereby the allottee of the NCDs had an option to surrender the NCDs to the UTI at Rs. 389 on allotment which amount in turn was to be paid to the issuing company as the allotment money payable against NCDs. It was argued that in the case of the assessee, the terms of payment as given in the offer document itself offered two options to the allottees and depending upon the exercise of option by the allottees, which was to be done at the stage of application itself, the amount payable was determined. The subscriber going for option (a) thereby agreeing to sell the NCDs, which is called Khoka sale, amount payable on application was only Rs. 81 per NCD whereas the subscriber not exercising the option of Khoka sale as given in option (b), the entire face value of Rs. 250 was payable on application. It was contended that there were thus, two different products offered as per the scheme given in the offer document itself with two different prices and going by the comparison between the two options, the price of Rs. 81 per NCD was clearly paid for getting allotted a detachable warrant. The subscriber opting for option (a) thus, was paying Rs. 81 per NCD on application as a consideration for detachable warrant and this was explicitly the true effect of the transaction.
31. After having given a careful consideration to this entire matter relating to the different options given to the allottee/subscriber in the offer documents in both the cases, we find it difficult to accept that the two options given by the issuing company in the present case made a world of difference as far as the true effect of the transactions or outcome thereof are concerned. We find that in all the cases i.e. that of the assessee as well as that of Abhinandan Investments Ltd. and Ors. (supra), options were given to the allottees/subscribers to surrender or sell the NCDs at a discounted price to the finance company as per the arrangement made by the issuing company and the difference was only in the stage at which such option was to be exercised. For example, in the case of Abhinandan Investments Ltd. and Ors. (supra), such option was to be exercised only after allotment of the concerned NCDs, whereas in the case of the assessee, such option was to be exercised at the time of filing an application itself. Since the said option was to be exercised at the time of filing of an application itself in the case of the assessee, the payment of Rs. 169 per NCD to be received by the subscriber from the finance company was agreed to be adjusted directly against the remaining amount payable against each NCD since it was clear at the time of application itself that the subscriber opting for option (a) would be entitled to receive that much amount from the finance company. In the case of subscriber going for option (b), there was however, no such amount and since the entire amount was to be paid along with the application as per the terms of payment given in the offer document, he was required to pay a sum of Rs. 250 per NCD on application itself. In the cases of Abhinandan Investments Ltd. and Ors. (supra), the terms of payment given in the offer document, however, were different inasmuch as a sum of Rs. 111 was payable on application, whereas Rs. 389 was payable on allotment and since the option to surrender the NCDs to UTI was to be exercised only on allotment, there was no difference in the amount payable on application by the allottees deciding to surrender the NCDs to UTI and the allottees not going for opting for such surrender. It was thus, merely a difference in the terms of payment of NCDs as per the offer document whereby in one case, the entire amount payable against NCDs was to be paid along with the application itself, whereas in the other cases, the amount payable against NCDs was to be paid in two instalments, one at application stage and the remaining on allotment.
32. There were thus two distinctive features in the scheme of allotment as per the offer made in the case of the present assessee and in the case of Abhinandan Investments Ltd. and Ors. (supra). Firstly, there was a difference in the stage at which the option of Khoka sale was to be exercised and secondly, there was a difference in terms of payment. These two distinctive features, however, were hardly of any material nature as far as the final outcome of the transaction is concerned inasmuch as in both the cases, the allottee/subscriber going for Khoka option ultimately paid Rs. 81 and Rs. 111 on application for getting allotted one detachable warrant whereas the remaining amount of Rs. 389 and Rs. 169 received/receivable on account of sale of NCDs to the financial institution was adjusted/paid against the remaining amount payable towards NCDs. In our opinion, the effect of these transactions thus ultimately was the one and the same and the distinctive features of allotment of NCDs in these cases as pointed out on behalf of the Revenue would not change the very nature of the transaction which, in our opinion, was exactly similar.
33. Having held that all the facts relevant to the issue under consideration as involved in the present case are similar to that of Abhinandan Investment Ltd. and Ors. (supra) already decided by the Delhi Division Bench of Tribunal, the next issue which arises for our consideration is whether the decision of Hon'ble Delhi High Court dismissing the appeal filed by the Revenue against the order of the Tribunal passed in the case of Abhinandan Investment Ltd. and Ors. (supra) holding that no substantial question of law arose, is a decision on merits and constitutes a binding precedent which this Special Bench is bound to follow. In this regard, the learned Departmental Representative has heavily relied on the decision of Ahmedabad Bench of Tribunal in the case of Nirma Industries Ltd. vs. Asstt. CIT (supra), wherein it was held that when the High Court dismisses an appeal filed under Section 260A stating that no substantial question of law arises, it only means that the High Court has declined to entertain/admit the appeal in the absence of any substantial question of law and there is no decision on merits by the Hon'ble High Court on the issues raised by the parties. He has also relied on the decision of Hon'ble Supreme Court in the case of Kunhayammed and Ors. v. State of Kerala and Anr. (supra), wherein the doctrine of merger was explained by the Hon'ble apex Court as follows:
(i) Where an appeal or revision is provided against an order passed by a Court, Tribunal or any other authority before superior forum and such superior forum modifies, reverses or affirms the decision put in issue before it, the decision by the subordinate forum merges in the decision by the superior forum and it is the latter which subsists, remains operative and is capable of enforcement in the eye of law. (ii) The jurisdiction conferred by Article 136 of the Constitution is divisible into two stages. First stage is upto the disposal of prayer for special leave to file an appeal. The second stage commences if and when the leave to appeal is granted and Special Leave Petition is converted into an appeal. (iii) Doctrine of merger is not a doctrine of universal or unlimited application. It will depend on the nature of jurisdiction exercised by the superior forum and the content or subject matter of challenge laid or capable of being laid shall be determinative of the applicability of merger. The superior jurisdiction should be capable of reversing, modifying or affirming the order put in issue before it. Under Article 136 of the Constitution, the Supreme Court may reverse, modify or affirm the judgment, decree or order appealed against while exercising its appellate jurisdiction and not while exercising the discretionary jurisdiction disposing of petition for special leave to appeal. The doctrine of merger can, therefore, be applied to the former and not to the latter. (iv) An order refusing special leave to appeal may be a non-speaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed. (v) If the order refusing leave to appeal is a speaking order, i.e., gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the Court, Tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the apex Court of the country. But, this does not amount to saying that the order of the Court, Tribunal or authority below has stood merged in the order of the Supreme Court rejecting Special Leave Petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties. (vi) Once leave to appeal has been granted and appellate jurisdiction of Supreme Court has been invoked, the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation. (vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before the Supreme Court the jurisdiction of High Court to entertain a review petition is lost thereafter as provided by Sub-rule (l) of Rule 1 of Order 47 of the CPC.
34. As pointed out by the learned Counsel for the assessee, the decision of Special Bench of Tribunal at Ahmedabad in the case of Nirma Industries Ltd. (supra) relied upon by the learned Departmental Representative, however, has already been overruled by the Hon'ble Gujarat High Court by its judgment reported in (2006) 202 CTR (Guj) 198 : (2006) 283 ITR 402 (Guj) (supra), wherein it has been held that dismissal of tax appeal by the High Court holding that no substantial question of law arises implies that the order of the Tribunal on the issue stands merged in the order of the High Court and for all intents and purposes, it is the decision of the High Court which is operative and which is capable of being given effect to. In the case of Nirma Industries Ltd. (supra), it was held by the Ahmedabad Special Bench of Tribunal that as per the provisions of Section 260A, an appeal lies to the High Court only where a substantial question of law is involved and therefore, when the High Court dismisses the same by stating that no substantial question of law arises, it cannot be said that it was a decision of the High Court on merits. Hon'ble Gujarat High Court, however, has not agreed with this view expressed by the Special Bench of Tribunal observing that a plain reading of Section 260A inclusive of sub-sections of the said section makes it clear that the only jurisdictional powers that the High Court can exercise are to hear an appeal and the High Court does not have any powers under the statute to grant any leave as such for filing an appeal. Explaining further, it was observed by their Lordships that the person filing the appeal is not required to seek any leave from any authority much less the High Court prior to filing of the appeal and it is, therefore, not possible to bifurcate the jurisdiction or powers available to the High Court while dealing with an appeal under Section 260A.
35. It is pertinent to note that the decision of Hon'ble Supreme Court in the case of Kunhayammed and Ors. (supra) relied upon by the learned Departmental Representative was also cited before the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. (supra) and a contention was raised that the powers exercised by the High Court at the stage of admission of appeal are akin to powers exercised by the apex Court under Article 136. The said contention, however, was rejected by the Hon'ble Gujarat High Court observing that there is no such dichotomy of powers under the provisions of Section 260A available to the High Court as is conferred upon the Supreme Court by Articles. 132 to 136 of the Constitution, It was further observed by the Hon'ble Gujarat High Court that the High Court also does not have any powers which can be equated with the powers exercised by the Supreme Court under Article 136 of the Constitution. It was held that the only jurisdiction that the High Court thus has while hearing appeal filed under s. 260A is the appellate jurisdiction and where an order of a subordinate forum is reversed or modified exercising such appellate jurisdiction or the appeal filed is merely dismissed confirming the order under appeal without any modification, it is the appellate decision alone which subsists and is operative and capable of enforcement. It was held that in all such eventualities, what merges is the operative part of the order under appeal after its confirmation, reversal or modification and there would be a merger even in a case where the reasoning of the subordinate forum is not expressly approved. It was held that if the merger is issue-specific, there is fusion of order only to that limited extent but it cannot be successfully contended that where the appellate Court merely accords approval to the reasoning of the lower Court or forum, there is no decision of the appellate Court or forum. It was also clarified by the Hon'ble Gujarat High Court that where the appeal is dismissed on account of being barred by limitation, being defective in nature or the appellant having no locus standi to prefer the appeal, the theory of merger of the order of the subordinate forum in the order of the superior forum cannot be applied because there is no "order" made by the superior forum on merits and the controversy between the parties has not been gone into by the appellate forum. It was thus held by the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. (supra) that the effect of dismissal of appeal by the High Court holding that no substantial question of law arises is that the order of the Tribunal on the issue which was agitated by the appellant before the High Court stands merged in the order of the High Court and for all intents and purposes, it is the decision of the High Court which is operative and which is capable of being given effect to. It was also held that it is thus not open to any person to contend that there is no decision of the High Court and the subordinate forum is entitled to take a contrary view than the one adopted in the earlier proceedings which has been affirmed by the High Court by a process of dismissal of appeal simpliciter.
36. In our opinion, the ratio of the decision of Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. (supra) is clearly applicable in the present case and, respectfully, following the same, we hold that the decision of Hon'ble Delhi High Court in the case of Abhinandan Investment Ltd. and Ors. (supra), upholding the order of the Tribunal and dismissing the appeal filed by the Revenue on a similar issue holding that no substantial question of law arose, is a decision on merits and since the issue involved in the present case as well as all the material facts relevant thereto, as discussed above, are similar to that of Abhinandan Investment Ltd. and Ors. (supra), the said decision is binding on the subordinate forums within the jurisdiction of Hon'ble Delhi High Court including this Special Bench. As regards the contention of the learned Departmental Representative in relation to the limited application of doctrine of merger, we are of the view that there cannot be any quarrel about the proposition that the order of the lower Court or forum merges in the order of the higher Court or forum only to the extent of items/issues considered and decided by the higher Court or forum and the portion of the order of the lower Court which was not the subject-matter of the appeal before the High Court does not merge in the order of the higher Court. Even the Hon'ble Gujarat High Court in the case of Nirma Industries Ltd. (supra) has also expressed a similar view while observing that if the merger is issue-specific, there is fusion of the orders only to that limited extent. However, this contention raised by the learned Departmental Representative about the limited application of doctrine of merger, in our opinion, is hardly of any help to the Revenue in the present case because a similar issue as involved in the present case was directly raised in the appeals filed before the Hon'ble jurisdictional High Court in the case of Abhinandan Investment Ltd. and Ors. (supra) which is quite evident from the following questions raised in the said appeal for adjudication:
(a) Whether the Tribunal is correct in law in directing the AO to allow deduction of the losses at Rs. 111 per NCD as business loss?
(b) Whether the Tribunal was correct in holding that the assessee company sold the NCDs to the UTI as a consideration the UTI paid Rs. 389 per debenture to JISCO and in turn the assessees transferred the NCDs in the name of the UTI?
(c) Whether the NCDs were subscribed by the assessee company as stock-in-trade or capital investment?
(d) Whether the NCDs held by the assessee company were as stock-in-trade so as to entitle it to claim the loss as business loss?
(e) Whether the amount of Rs. 111 per NCD amounts to forfeiture of capital or is to (be) treated as business loss?
(f) Whether the order of the Tribunal is perverse on facts and in law?
37. A perusal of the judgment of Hon'ble Delhi High Court passed in the case of Abhinandan Investment Ltd. and Ors. (supra) shows that all the facts relevant to the issues raised in the form of aforesaid questions were discussed by their Lordships in detail and after considering the said facts as well as the arguments advanced by both the sides, it was held that question Nos. (c) and (d) were not even urged before the Tribunal by the Revenue. As regards the rest of the questions, it was found by the Hon'ble High Court that the Tribunal has analysed the factual position in coming to the conclusion that the assessee company's claim was admissible as business loss. Hon'ble High Court also perused the decisions of various Benches of the Tribunal to which reference had been made by the Tribunal and found that there was no basic difference so far as the transactions involved which were the subject-matter of consideration in those cases. Hon'ble Delhi High Court thus, found that the conclusions of the Tribunal were essentially factual and had been arrived at after analysis of the factual position with regard to the relevant documents and, accordingly, held dismissing the appeals of the Revenue that no question of law, much less a substantial question of law, arose out of the Tribunal's order. It is thus clear that controversy between the parties as raised in questions (a), (b), (e) and (f) by the Revenue in the cases of Abhinandan Investment Ltd. and Ors. (supra) had been gone into by the Hon'ble Delhi High Court,and the appeal of the Revenue was dismissed by it holding that no substantial question of law arose. The order of the Tribunal on the issues specifically raised and agitated in the said questions before the Hon'ble Delhi High Court in the case of Abhinandan Investment Ltd. and Ors. (supra), thus, stood merged in the order of the Hon'ble Delhi High Court passed in the said case and even going by the theory of limited application of doctrine of merger, it was the decision of the Hon'ble Delhi High Court on the said issues which was operative and which was capable of being given effect to. Since one of the issues so raised is similar to the one involved in the present case and as already discussed, the material facts relevant thereto are also similar, we hold that the decision rendered thereon, in the case of Abhinandan Investment Ltd. and Ors. (supra) by the Hon'ble Delhi High Court is the decision on merits and the same constitutes a binding precedent which this Special Bench is bound to follow. Accordingly, we respectfully follow the said decision of the jurisdictional High Court and direct the AO to allow the claim of the assessee for loss incurred on sale of NCDs. The issue referred to this Special Bench is thus decided in favour of the assessee.
In the result, the appeal of the assessee is allowed.