Karnataka High Court
The Commissioner Of Income Tax vs United Breweries Limited on 15 February, 2010
Bench: K.L.Manjunath, Aravind Kumar
IN THE HIGH COURT OF KARNATAKA. BANGALORE
DATETD was THE: 15!" DAY OF' FEBRUARY.
PRESENT
THE HON'BLE MR. JUSTICE K.L.MA1§IJt£NAfi¥:i T' M
AND
THE I-ION'BLE MR. JUSTICE?'AR}¥iIIND-iKIj:1§§.;}3'' ;
I.T.A N0: 142443/2oo1%.c/WAU " A
I.T.A N0.4.QG._/_2004V__ V_ '
I.T.A N0: 142-143/zgg;
BEIIWEEN
"E
. The Commissioner gtif " V
Central CviffVC1€;§*'CV.R. *BE§j1Vdi1'1g,A._ "
ill Flooli; 'Q! 1«een"s__Rog.df _ " '
Banga101'*::--i3.6;Q 001.. .. " V
Rep; "e5;c11t;e-d by§:,;Smt ,\f=i_1ay'a"E\./1--C;'i§1a11ra1"r1
Appellant:
(By Dr. R.B".'I{;fVisvh.m1,A'Afiii/ibcate)
Un~i_t.(_::.d Breweries Limited.
1/'1-,"."L'\/iV{'T:*?:.é11 Mallya Road.
I3aa'3géiiOre»56O O01.
R'::*pr€:sez1ted by
? S.x:§'""I' .S.Nara.ya11a Rae
' Dim-*(:t',()1'
The Ir1c:orne»t.a2< Appeliate
'I'ribm1ai. Bangaiore Bench.
_,w" .
Ix)
IIE Floor. Santhosh Complex.
K.(}.Road, Bangalore - 560 009.
Represented by the
Vice President.
Respo_:m;le'nVf.s.:_
(By Sri. Aravind P Dafar. Senior: Cotmsel for '4
S.Parthasaraihi.} 1 7 ' "
These Appeals are fi1ed__a"U.ndef9 Seefidn of 'V
Income Tax Act. 1961 prayirlg-«_t'u .al1ovH.he appeal and
set aside the order passed by"'t:l1e:'ITAT in ITA'1'~?0.296 &
315/Bang/1998, dated 02-1_1~§3OO'£)_'for~at.I1e assessment
year 1993494 and confirgningatfle_Qi*::Ie1f" passed by the
Appellate CoI1'1r1j1_issi0r1er..., Of I'11e0m'e'"'Ta'X~,." Central Circle
WV, I3aI1ga101'C,.., 1 . '
I.'I'.A No.400}'e2<ice4'e...e .: T
e a. D15,' "
1 . The C0mr13iVss,i:QI1e';f. __Oi7 I r~1come~t,a;><. C IT(A)
Central Cvir(i'1e,'f J
C._R.B1ifldir1gq '
__Queer1s RO'a.d,
¢_anga1_Qre' .. ..... 14
V' 'Fh§5'*Deputy..Commissi0ner of
-- ."--I~DCO1Zi€..T fl§(,
A »._Centra1'j'.:Circ1e ~ 11.
C,R'.._Bu':1c1mg,
v Que_e"ns Road,
AA 'je'-Bangalore. Appeilants:
_ M.V.Seshacha1a, Advocate)
AND
M/ s United Breweries Ltd.,
No.1/l, Vital Mallya Road.
Bangalore}. H .
Respondent:
{By Sri. Aravirid P.Datar, Sr.COunsel for Sri.S.Parthasarathi. Advocate} This Appeal is filed Under Sect:i'0an lOflI'n:eQr£A::eAl Tax Act. 1961 praying to allow the appeal set the order passed by the ITAT "in ITA'N0.667ir,(Ban.g/V2001, . ' dated 28~1~2004 for the assessrnent year«]_9932:94 and c0r1.firmir1g the order pas_s'e.(:1 gby the Appellate Commissioner of Ins3.Qme"l Central Circle -- V. Bangalore. U I 5 v v These appeals havirigbeen._hear.§1"and reserved for judgment ririifoar~prdnQur1Ce_IIier1t of judgment. this day, J", C'ielive1'ecl the following :
RE: ITA Ni6;1V_42.ein¢i'v_1l4f3V/2002 The revenue is in appeal qL1est.ionir1g the R legality of the orders passed by the InC'0_me__v'i"ai:7Appel1ate "Tribunal, Bangalore Bench. in ITA 1\}'Q,_2§E$V,--'l3ang/1998 and rm No.3l5/Bang/1998 for the '~.as'sessment years 1993~94i The assessee filed return of Income for the assessment: year 1993-94 on 31-12-1993 declaring a total income of Rs.2.58,86,éi4~2/-. The return of income was processed under Section of the Income Tax Act' 1961 {hereinafter * 'the Act' for short). Notice under; Sectiori :t_h'e, Ru Act was issued to the assessee."1Th_e "C0rriniissior3e'i*._.of. Income Tax Act {appeals} bj/9 £1994 1' 9 has set aside the iritimati-ens.'"_'iss'ued iirid.er/E Section 143{i)(a) of the Act. >1hereaft'eiWar*VdsLassessee filed a revised return.oAn'--31-:3-199.5...' 'O:9if:.._seekiiig queries from the assesses';-, "asS~es'seeA'._'hasV once again filed the revised,retL:i'n1=éj:n::'iineorrieon 28-3-1996 declaring a business-.._i'ncomeVof Rs..f3'.é2.34,068/- and long term Capital gains gr 1A0.25,005/-- as against the business income uRs.2xj?6.,.88;348/- and short term capital loss .o'f«Rs.9;4{1'§é§'1..1/-. On the basis of the same and after Ar--.iiearirigd"'«-€.he an order of assessment came 29-3-1996'Vmade the following additions:
to passeudf The Assessing Officer by his order dated .. '= /M fi
1) Bottle deposits of Rs.266.65 Lakhs:
ii) Depreciation on beer bottiesz
iii) Short term Capital loss of 1'_en.i_§1':-1ei:'i,tio'n bf rights amounting tiow' brought to tax as short t.e.1_:4rr1';(:apité&_
iv) Receipt of Rs.4.3",!;"'--Cr0res-- to 'V tax as revenue reACe--:'p.t;;_ amongst others.
2. The t.he same filed an Qrppeals) in ITA 76/CC-
1.1/cIT(;r.)V_/'9e»9iz'.'sA3Iif1*h¢~-.._:Appe11_atse Authority by order datef,1"vt26~';'?.»VJV998' pleased to set aside to V"diVs9;1lo€vKanee&_made on account of non competition fee of remitted the matter back for fresh e0nside_rat~3e'n to lthe Assessing Officer and Confirmed the_0rd'er of assessing Officer on other three issues.
3. The assessee being aggrieved by the order of remand passed by CIT [Appeals] dated 26~2v+--J___998 regarding remanciing of the matter to Assessing:
filed fu1"t.her appeal before the Income H Tribunal in ETA 297'/',{:3ar1g/ 1998?" "a1sd; filed an appeal In ITA N0.296/ assessment order dated 'V against the t:c)11f'1rn1at3Lt;~:1_ of A's'se.ssr1'i"er_1t. order'. "The said appeal came to be a1}0w'ed'j'by .AA.'.:'E"',1'"i'_'L_mr1a1 against which the rervengie in I42/200] by raisingthde n.jpstai}1tia1 ' q:i:estie'h'sV "of Law. 4:'-It' is bar that in so far as ITA No.1éL3/26401 V_Vwh.iehAEv1as".been added in the prayer is by "v.0Versight and as dsfueh it. is submitted by the learned ,.SVV("._f}i(V)I'..IC.Q{it:}S€!1:t.SP1. R.B.Krishr1a that no substantial que.sti0;fz..d1aw is required to be answer in ETA ZQQY1 and accordingly submits that the same may VA as not pressed. ETA 142/2001 which is / «'5 'xi {,,£;'"
filed by the revenue against the order passed by the Tribunal dated 21 1»2000 is assailed by the revenue by raising the substantial questions of law. Re: ITA 400/2004
5. The Revenue is In appealsby:qLIest.1e'n1.101;};--.___tl*2:e_at Correctness and the legalityo«§_Vt.he'e,rde1f the Income Tax Appellate____i°'-..Tr,ibunal«~.01 ITA No.66?/Bang/2001 dart-ctr 28-{.1-:;24004;'whereunder the Tribunal has disn1issed"'ti1efap'pe~al thjevllrevenue on the ground--fh>1lu"i.llé;':i§?SL1<?jHithe-sa'id appeal is settled in fav0url'~_0f"t.he the income Tax APpellate Tribunal.u'BangalQre.,vit its order dated 9-11-2000 passgedi N't).2,96/Bang/ 1998. The revenue was in abgjeal -._the tribunal in ITA 667'/Bang/2001 order of CIT (Appeals) dated 7'-6-2001. 'v_'"E'he (Appeals) had taken up the appeal of the Wassessee which was filed against. the order dated 3052»-2000 passed by the Assessing Officer pursuant to §/,.
the order of remanding the same by the C1T[Appea1s} in his order dated 2€>~2~I998. The substantial question of iaw raise in ETA 400/2004 is with regard to t.he claim of the assessee to treat the "non competition fe_eff_i'-a_f3~.Va capital asset as against the claim of the I'€V€I1"t_1€'4tC.. . the same as "revenue receipt".
The said question of law is also r'a1«ise§i ITA"
and hence for Consideriidigi"'~..these' V2' {ITA = L' 142 / 2001 ('ii {TA 143/ 200 1 ). VA vstihstatntialie qutestions of law are enumerated 4'h'erein__1i1e'toW':f:_ . gi) " ti'u§;.:Tri§§'iihai...;g;i;,;;se.\ ;;gh;_,_:n__. deleting " "t.1'1e: to the accretion to Without nothing that the as-sedssee dxeortapany had not proved that such acereti'on'Vwas in fact real and not nothing :v4"t1:iE'.--.p3'0ViSiO1'1S of section 41(2) of the Act'?
{ii} Zddéiiwddhether the '1' ribuna} was right in treating the beer bottles as piant'?
[iii] Whether the Tribunai was right in ignoring the facts on record and allowing a capital {iv } I _ 9 Rs.5.10.53,28O diminution in the value of shares hehE.d".by loss of representing the assessee in M/s.McDowe1l Limited. by misinterpreting the Horfble Supreme _Gou_rt: in Whether the : Tribvttntiif if jurisdiction by a_dj1;dioai'i.1ng.Vor3: "issue i' V pertaining to the .t_&.EVl_b'i~1\i.[y of"-eonapeinsation of Rs.4.3OA..'_tErore.'s the assessee. on merits. th_e"__ir:st Appellate Atithority the issue for rew _ the Officer?
of the Tribunal that " "t.l"ie: Crores received by the asses's_eeas_r§.ompensat'.io:o was exempt from _Vp'e"I've'rse and unsupported on facts and in « 'V the Appellate Authorities were ' heorrect in holding that the 'non~competiti0n fee' of Rs.4~.30 crores claimed as capital asset o.2m1'1ot be treated as a revenue receipt and bF(')£lgh'fL to tax as heid by the Assessing officer?"
E0 The substantial question of Law (i} to {V} referr.ed'-.l'te.V_ hereinabeve is formulated in ETA substantial question of Law _N'.0p._{vi} _-'"refer_red'= to hereinabove is forrnulated in substantial questions of laWll._ftJrrnula'ted two appeals which are cdmmQrI1«l:tOpv--b'0th with regard to the taxability dfLRsV.4.3O Crores received by fee"
namely capital asset as claimed an V treated as revenue receipt claimed by revenue which is at l\lVQ:_v{iv)l,ld{v} pa ' ll ;p_We:..r_have"heard I)r.K.B.Krishna, learned senior "e_0un:_sel for the appellant revenue and Sri.A_ravin_dl "z"3'1,v_1Zilat.ar learned senior counsel assisted by T3"-4..__'S,ri.S.Partl*:asarathi appearing for the respondent A "ase.e»ss'ee.
l 1 RE: SUBSTANTIAL QUES'I'iONS OF LAW (iv), (V) 8: (vi) 7'. In so fal' as substantial questions of law Nos.
(iv), (V) & (vi) are (:once1'ned. we find from the ree/o<rd_s that at the first instance the Assessing _ dated 29~3~i996 held mar themarnourit"off'_Vvl?s:lél';3O.l:i Crores received by the assessee '-as :_r'eV'e11U.e"receipt---..b§f.t_' virtue of disposing of its held Brook Bond India Limited. order was taken up in ._l:'3efore the CIT (Appeals) in fhe Appellate remanded the matter for being adjudicated afresh. _w'ii4l1l"r{2gz1rd.'-- to"v_eo"nsideration of its inclusion in "thée ylea"1*"l'993~94 01' 1994435. However, the :'::ia;fig Assessiiig Officer to treat. this receipt as a r<+\.-*e13_L1e.~~zfejL:eipt was confirmed. Against this "eo11firn'1a__1;ion of order the assessee filed an appeal before i orlth'e~..'llribuna1 in ETA 296/Bang/98. When the matter pending in adjudication before the Tribunal, the We Assessing; Oilicer by virtue of the CIT (Appeals) direction passed an order on 15-2-2000 whereunder it was held that the said amount. of Rs.4.30 Cr-Ores I'€CCiV('3Cl by the Assessee is to be treated as ca'p:ita.l'-.ih.y nature and to be taxed during the year as 0a,pita&.gairis_v_'i H and accordingly deleted the adidition. lda-ted 15-2-2000. We find that against__ 0-the o'fgi._gAr»i~»:"' Assessing Officer dated had it been filed by the very._sam'eWas.ses'se.e beforethe CIT (Appeals) in rm 205/cc?-_1i{Aiii:/sa_}:2'000; which had been 'At5'pellatelllmltéhority by deleting the am01.in't~,0'l': brought to tax as Capital gains ont.he»gr01.1n'd'thtatymthe Tribunal in ETA 296- 298 is:-mg)/ssyy "Vdatedv 9-11-2000 had held that the l 0' "%1fIl{).L3:I1t,_''\7\'&1f5z130?. taxable. As seen from the records that of CIT [appea1s) dated 7-6-2001 the reveiane Ccrajrrited the same before the Tribunal in ITA 667/Bang/2001 and the Tribunal also on the same it as assigned by the First Appellate Authority it-v dismissed the appeal of the revenue by its order dated 28-1-2004. The Tribunal also on the same reason as assigned by the first Appellate Authority dismissedhlllithe appeal of the revenue by its order dated 28- 1
8. In the meanwhile the Tribunal...iri'=.lfI"A:' 296-298/Bang/98 has relied ',u.pofiA 5d:d§ap,agdté.seMi' 15--2-2000 passed by the Assessing'.Qi'fieer,»pti;:sgan_t; to the directions of the CIT {alppdealsl andfithe findings recorded in the first asse*ssrr_1en_t.Jo'i=der'"dated 29-3-1996 has not--~----bee'n. '(tom-3id'ered' Tribunals. In the fitness been appropriate for the Tribunal a{va.i-'I the finality of the second ordVérv......d_/ated 15-2-2000 or consider the by the Assessing Officer in the order dated 23-9-1996. Having not V.e.mbari:Vedupor1 this exercise the Tribunal proceeded "--on.ly4'"_on the second order of assessment dated K.""-ljhyvlE3-2-2000 and thus order of the Tribunal dated 15 taking int.o C()l'1SiCf(;'I'at.i()I} the orders of the assessment dated 29-3--1996 [Annexure-A in ITA N0.}42/2001 as well as the order dated 1522000 (Annexure-'C' in ETA 400/2004).
RE: SUBSTANTIAL QUESTION or LAW No.1:_f"' ' V d
9. In so far as the substantial .1ave"
No.1 formulated hereinabove with regard in haccretion .' bottle deposit as formulated.
concerned. we find that the Assessing has found that the Assessee 'i_3ee_1v1.iaccvriiisiting the entire sale but splitting it into reftniidable '-bet.t.le'arid sales consideration in the inv0ice.Vitse1Kf'L' is .v;t"0n'ndT hy the Assessing Office}: during . .°theV"i"e0tii1'se'.._of Asisessment. Proceedings that bottie to the balance sheet as liability to be disc~har§§ed,u the assessee to the wholesalers. Hence, :'the_As.s'ess'1ng Officer examined one of the whole sale it . dealers namely M/s Vitari Enterprises under Section of the income Tax Act on 27'~2~1996 to find out the 16 nature of transactiori and the copies of the statements recorded from witnesses i.e.. M/s Dewar Wines M/s PI'aSh'dI'1th Wholesale Wine Stores was supplied §o.__the assessee company and offer for cross--examinat.io'n»'of Witness was aiso made by the Assessifig H However, the Assessee by 1et~ter"*ti.:5it'ied informed that they did not preéferhto cro_ss'4ex'arnirie"~ Sri.i\Eeeraj Rawai Proprietor st. Vittapjy :";er1:terpVrises and accordingiy gave u'p._the ciross:éeXérrninatio'h.'"
10. it was.'::ont.e:n'dec3:fby"the before the Assessing net accretion to the bottle deposit for the Ver1d.i'r1g""31--3--i993 was Rs.291.95 lakhs which aiso i1j_.ciu_de.d refundable bottle deposit due to Vitari inter-ityevrprises in a sum of Rs.31,30,840/« Which added to the assessees income since t:he«."asyse-ss--eVe by.~it.s not cross--examining the witness and by'cjyonserlttd-}.ett.er dated ii-3-1996 has given up the '.Vcross--exéxmination of this witness by Virtue of which it 18 266.65 lakhs as trading receipt has examined only witness viz. Sri.Neeraj Rawal Prop. Of EI:1t_.e1'p1'ises according to which the Rs.31,30,8-40/« said to be due f_1_fom__ ass-.ess"ee'_':vto"'~M,/Vs Vitari Enterprises is not fou1"1d:":.«fron:~'iVthe accounts of M / s Vitari E1ii_e'r.prises-. V for d'dthe._j"pe.ri'od ending 3l«3«l993 and " oa.tAeg.driCa11y stated so amount. is dtie account of bottle deposits, it cann._<:3:t% paid by M/s Vitari ..1Jv:B'. cost of beer including cannot be debited to the trading aeeoiznt '0Vf'a'sse:sse:e'as cost of purchase of beer. Hence; we (:ou:1;'-'irA1V_'Vr'1' 'the' addition made by the Assessing "e;<tentof 31,30,840/« and to this extent tihe"-dsfab'sVfa1fi_tia;lVdquestion of law No.(i) formulated V _herein abcrzre is answered in the negative i.e., in favour of the revenue and against the assessee by that the assessee Company had not proved that ;, :4.' /'_,..-
f E; \E 20 disputed by the learned counsel for appearing for the revenue, as such the substantial question of law No.{ii) is required to be answer in favour assessee and against the revenue.
RE: SUBSTANTIAL QUESTION 'N()_.'(iiiii}._ V':
18. In so far as the issue regarding the '(:apit4ai!'i_i'i~0sis..:
Claimed by the assessee iii " V representing diminished in t'th--eV:A.Va]i1e of shaufes»'§he1d by the assessee in M/s is analysed as follows:
IA. The aissesseeéV"el_§iimed a short term Capital loss of 3 account of its failure to to shares offered by M / s MC Dowel] 8;A"Cr;n1.pa;jyjwhich is a company under the same Hiahagemetfif *1' he assessee had the right" to subscribe "._"t'() P{'s;€i1«;J2V6,394~/~ and the number of rights shares A ":i:"::aAiiVhs~;:1'ibe7d only to Rs.22,75,650/-- shares and reriounced the right to subscribe shares to 1,541,100 22 diminution in the value of the share which 1'esul?ge(i in loss in the value of old shares. assessee was .eI1tit:l.ed'.;'td set off against the capital gains. The Asses_si.ng:.fQfiicere l did not agree with the said e()m:e11ti_<in the facts were dissimilar. The Ap«pe_li'ate Aiuiiiiniriiy also confirmed the finding of thleV.._lAssess-inéi '(Dffieer and accordingly held that' is computed with reference to theAVasset'_i,.r.3E._ GO;/l¥":sii1ares only sold by the assesisee:;1ie'ia_ndvé'-ndi'Vin 4_re.s'pe'(;'t""0f shares which assessee did, net :subsCr1'lf>'e' veluntariiy gave up. 15;. The that renouneing the rights sh21i'es.Vi11xr()alV'e:s t.rar1s'i'ez9"':\2vithin the meaning of Section lli"'i;2{4*'4,,\)~,:. Z»,/'rid.I';irthei9 """ Hheid that lViiss.Dhun Dadabhoy applicable to the facts of the Case and assesseer wafsAent.iiled to seek for set off of capital loss "4"-._l"s1niffereci..-- "on account" of dirninution in the value of ll . 'shares.
(Ci) Notional loss can be set off only against realised gain.
In support of his submissions Sri.Krishnaflxfoiildvvirely'1 ' upon the orders of the Assessing' Officer V' wherein said issue has been disciisseld ifi_Vd--etail"
considered. He would submit«,_that Trvibunal Wa'siVn"'error 'V in holding that Miss..~DzhunA..Dadabhoy 'Kaap'adia§'s case would be applicable
17. Per learned Senior counsel .wou_ld contend that Miss.Dl3uii1--Afiiad'abl1oy'vi._:"Kapadias case is squarely applicable'--__to the the present case for the __ follovjfing ~ I:easo'ns.:A V D' the shares came to be allotted by in lViiss.i)hur1 Daclabhoy Kapadias case as aiso in the instant case. {b)Diminution in the value of share has occurred in both the cases. 3 (1) MR 1967 SC 614 Miss Dhun Daciabhoy Kapadia Vs. Commissioner of i11eome¥ie0ax.
Bombay;
(ii) (1993) 203 ITR 403 on Vs.Obe7j'o:i and Investment
(iii) (2000) 280 rm 008 Asst.Commissioner-.of In'C'orher'I'2i§?:<":A
(iv) (1080) ieoméa e;'7"i<i:iif;:s'--iyfsj*H%.Ho1¢k'Larsen.
19. Elaborating his.:.s:3.b'1nissi'oi':«: 'Arvind Datar. learned Se11ior af;p'ear_i4n:g ior:'the assessee would eontend----i----t.hat~;_V"iiniiiziallyjlhassesseev"Ehad claimed loss of later been changed to Rs.5.iO.5u3;~2hE30_/Va' -and' this change in the quantum of .__1c)ss3:L"Cvaisfirizade ijefore<the first appellate authority which aecoulit of the market quotation of the oif'iVEOf)owel1. Prior to the rights issued, which at _I§:'+;.80/-- fell down to Rs.70/-- in the market after rights issue was completed. Thus. on account of this fail in price there was diminution in the value of Rs,10/~ per share. 'Which fact. has been accepted by the first appellate autho1'ity.
20. In order to examine the submissions._1fr1ade¥.ai:< 3 the bar the following facts which are not in are required to be eXt.ract.ed. The co1'rip1itation_ of ~net_shoft-- term capital loss as claimed by asse.sse.e is as.".cfol1o:'Ws'i.
"7.'f'he assessee clétitf1'ed tliétt. litifnciggrred short term cap,it':a.l loss" lz:i'ccount"l'of"'Vlnor1w subscription to riggiitf of t\l!_£vcV:L[3o\ve1l 8t Co. The computiationi.giveti l1'l' was as under; it A' on lacicotiiitlllof forfeited MC Dtiwtell 8: 'C0,. LtC_';;
,,._;j€R:gia_ts eligiltile A: 6126394 Shares " Rights subscribed 2275650 Shares .. 3850744 Shares Ah'*-.iQL10t--é1Lt.io3=icum right Rs.80/ share Au_otr~1_tj..on exwright. Rs.70/share Differe13(:e Rs. 1 0 /share Loss on account of rights foregone J Rs.388850744x1o Rs.3.85.07,4-40 Gains from sale of rights entitlement:
Proceeds on sale of 154100 f'""& debentures of. an Indian company shall computed by converting the cost. of a(:q11isi<ti.on,,'f~.._ expencliture incurred wholly and exct1usiv'elygi.n ' eonneetio1'1 with such transfer and fifheffuii value of the consideration receixzed -for _ac'fc-rjuirigfl as a result of the transfer of 'Ca"p.it3]_:"a.sseit--F7TA into the same foreign .€iurrene'y.v_sis utilised in the purehe{se:*of the 'shares or debentures. and the capitaliigauiiss so feorrzpeited in such foreign ourreneyff.si11s;'l'1:.'f_i;>,ef '-I'_eeonvert.ed into Indian,cL1rre.nejz.:-so--._ that the aforesaid" 'winner of capital gains isfhédi.ii5e"7a;§p1iije.e£i3l.e:'d.in'-lzrespeet of capitai gained. A' "ar.i.sfng from every reinvestrrxne:1t.._»f,here2fft'er' and sale of, shares in hidian company:
Pr_ovid4édV_Vfurthe'r that where long--term capital a,rises""f1'o.m' the transfer of a long term _eapi't«211--.;isset;. other than capital gain arising to '¥'_z=1.snoh;resi'der1t from the transfer of shares in, or A »...4deber1t.i,}'..1"es of, an Indian company referred to in th~e"first: proviso, the provisions of clause (ii) A have effect as if for the words "cost of '"a.'Cquisition" and "Index Cost of any [E3xpian;«at.i()r1.--F or the purpose of this section,~ improveme1'at" had respectivefy been substit.ut'eci:
Provided also that. nothing C0IT1t.21l'I'lC'C1;'"ik1".:i'h'¢V':. second proviso shail apply to the capital gain arising from the"t:1*ansfer of'iong»f2 term capital asset being i?;on_ti=.{)ritdet3e'I;tt1re..x7.A other than capital indexed boncis' issueci Governrnentl ' V ' hi Provided also debentures or warrants referredtttfi to clause (ii) of section 47 arevAtrar.1s.ferreci gift or an irrevocabiet"§Iit1st,;3«.t.he '1'na.r'}{et:--'Va1.uie on the date of such:s'11a-1iu"i3e'::deemed to be the full vaplueeot"eVonsi;d.ei'a.tVion rec-e.iI.Ied or accruing as a re'stzit_ the purposes of this secitionzlp '.
}''1_'vovid4ewdV_'' also no deduction shail be iri1A""(:eo.m.p'uting the income chargeable it 'Capital gains'! n respect of it paid on accotint of securities '' tax under Chapter VII of the fiiaianfre [No.2] Act, 2004.] {i} {ii} {iii} "foreign Currency" and Indian Currency"
shat} have the meanings respectiv'eIyr. assigned to them in section by Foreign Exchange Reguiation (45 of 1973}:
the conversion of In,dian._CTurreney 'into foreign currency and the ttrteconveirsiton of foreign currency Ind.ian._ shali be 'at the :"'rat'e_.pA of A"-Exchange prescribed I inx:this'.'bejhalfg ' 'I "Indexed cgjsttvt acquisition" means an a4r.1"%.Qu§'if,v.rhich_V bears to" the cost of aeqiiisition' t_h'e"_'sarIie proportion as Cost Infltaptionw.VIr1«de3<'x_fo_rthe year in which the asset: is':_i'~ti'ans£erred bears to the Cost uV'I«nt1atiori_ for the first year in which I I theaasset was held by the assessee or for I the year beginning on the 1*" day of April, whichever is later:
'."1ndexed cost of any improvement" means an amount which bears to the Cost of improvement the same proportion as Cost Inflation Index for the year in which the "R 36,96,344 Immber of rights shares have been renounced for nil consideration in favour ovfV_:'1-arge number of shareho1_ders who had applied V. of shares in the public issue. Theeeeiaim of't:he',j3.sS'eSsee_ V was that on account of the loss of ri._§c_'g'h~f to'~st}ibScfii5$_e..foT--:. 38.50.74-4 rights shares aée'e~s.see A'comp_aip1yA 'lost " %' 3.85,07.44O at Rs.10/fie. per short term capital loss. _that since it realised Rs.22.f3§L.QQO 100 shares for coilsiderjgiiioo capital gains to that capital loss of Rs.3.62:f2A3';4'}4O ext by setting of short term capital' gaiI1"agai11St s"ho'1"'i term capital loss. it is seen ..{ronMuVIise.Dhun f)a§dabhoy Kapadiae case there existed ' E.'io\_A}ip ,§'*i.;1gri::::1_ iezl ts viz.
Sé1!.e:of' shares or rights cum shares.
3.] A .__Trar1sf_"ej17or and Transferee. 35 transfer in favour of a transferee. Transfer in favour of an l,.EI1kl1()\V]'1 person there cannot: be transfer.
24. It is no doubt true that revenue C'c1I"lI1(,}'i'~,Si{7l.~I"l the arm chair of a business man to decide as__--tfo hoWj'the--.- ~ business is to be run and as__heI_d bywttiefv Supreme Court. in 288 ITR page ~'at.:'pa1ia contended by the learned'»VSenViorAcouns§j.:V':'AS:ri';An'ind Datar. However, the reyenueVAforfiI9I1rposes Aoftvbriltging t0 tax which otherwisevA~'ese.@D€d is not prohibited to ascertain, analyse and Va'r;fiv_e"tat-._aacoriclusion to examine the nature of t.ransvac'£io'n. itri'-_s in this background the issue addressed by tVh'e..Vfivrst,Aappellate authority requires to be ext'.'r:--1_cteVd=in,oi~*d_er to avoid repetition of facts. The same rea V i'o.1'_iows i dbpellant was holding 51.05328 out of he ;, 9Q{9.3.I2O equity shares as on 31.3.92.
" -. _.;?,'5..52.664/V bonus share at the rate of I share for every existing share. were issued to the 36 appellant with eflect. from 1.6.92 as a result of which the shares of the appellant went up to 7657.392, the appellant continued to mcg'oriiy shareholder.
As per the 'Letter of Ofler' 99 circulated to equity share holelers«as--.«Pr;:'vate_ Conficiential as a prelude.'ito7'.'_p'tlbltc. /ri'.§.§Vt,tv£.'l shares, MC Dowell &':_C--oh1pany' to go for issue of ealu-iifishares of Rs. I 0/ « each at Rs.C)'lO']'~°Vshare jor rights and 119.9} 744 ;}3qu:'t;; V.'sh:o_res'. o;f:'»'Rls. 10 each for at a premium of Rs.3O per on right basis in the ratio of «rfshares for every 5 shares held Z ..... on 18.8.1992 through the letter of offer.
9500 Equity shares of Rs.10 each for 9 cash at a premium of Rs.45 per share reserved for firm allotment to UB Lt¢:l.. the Holding Cornpany. 38 4 on page 3 of the 'Letter of Offer' mentioned earlier. ready asjollows :
"The Equity shares reserved for firm 5' U.B.Ltd. under C(19) above shigqbe i:c';:gh}t:i;;fi"i»e;2;re_ "
the public issue opens. it holding 76,57,992 EqTu_iiy Shares, e:q"L:.i:uaten'i: to 51.09% of the paid Capitai..._ It to subscribe to a I?'liZfIiTfH1F7"i[Qf;V:5O, 1 5.O"Eq_i4itgi shares including 28,19,5:..OfO_' i?..'q1;;i!i;' on a firm allotment basis a_ m:';oeriTod--V"oj' 5 years in accordaricequjith §:Seeu.riiies"'a'ridEééchange Board of India _Coniribution from out of intends io renounce to maintain a minimum post is.sue-- .._oj'».5'3.33% on the enhanced post iss ue' of Equity Shares Ito: reri'o'Liricernent 38,58,744 shares no was issued to SEBI by SBI capitais mark4etsv_ vide letter dated 01.01.1993 and SEBI AAtj1,1rr1..-hi'a\re given its no objection vide letter dated. 5 $1993 and this right in rights share surrender by " assessee in favour MeDowe11s was issued to the /% 3 ' i..$;/ 41
11) The traded value of the share of Meeleavell and Company limited as on Rs.70/-- per share. As per furnished by Madras' their letter daieci' 3._Q~ 1 ~
iii) The assessee h€1S3"l»itself acquired mgler etrerl -- public:
issue at - and 55/ "
Vfaee value is .... .. .
of the rights held had V'l4{ra_hsfe.:"re'db' 154,100 rights for a ,llr;Qns'i'V(:le'rta1't'Vion of Rs.22,84,O0O/M. ear} be sold at 21 profit either in the open value at Rs.lO/~ the suffering of loss V'-in the"fa_rE€.s of the present: case did not arise. The alleged only notional. The judgment of the Apex 43 company and it is found in the instance case. sometime before the right public issue of a bonus issue at 1:2 had been quoted few months before the shares were Exeliight and Cum~Right. Thus. it Cannot be=h.e'1'(:i"l--iifI' ~ surrounding circumstances where_the_7asse-sseei Viitself K"
being majority share holéer of and Cum-Right. price of thelsriaresAquoted'iv-ir1"':t1'1ei~s't0ek " it exchange were not __artifieia1.u:'"LTh'e_ -{Appeals} in paragraph 19 of the as to what was the eont.€fiE,s_ earlier and is i'equireVdMiio existing shareholders before 1992. The same reads as ur1cier:_ 2 h A it 9 ;5e'r'"the letter of Offer mentioned V circulated to existing shareholder H hp.ulVbli(r issue, the quotation for period u;)to'A"t)ri1 1992 were as under:
i\/Iorith Year High Low i Rs. Rs.
E Oet~Dec 1991 131 82 1 January 1992 134 1 18 9 0 ».M40:1th ""sgpe:992 .?fOchl992H.
'fK5N0w1992V '.}0ecj1992 44 February 1992 [125 112 March 1992 150 145 April 1992 205 185 May 1992 190 L100 June 1992 91 83 July 1992 80 72 [ August:
[1992 :
70xR[ yff}' The share prices quoted by - * 0 Exchange from 31.7. 19929 before closure of shareh0k_1__er's_ u1jegis9'te-r_'_t0 determine the pers0na4_."tr) "r_igh't.V5hares were to be issued were as folioiévs 5.8.92 e1&92"5V,7~ 7¢192.xi _ 17£i920g _ eX;ri.ghts""'"
r.6a65_;d0~;
"7000.}dog and hence .Vtransaeti0z_'ns) Qt;0tafi0'13*s'in Madras Stock Exchange 'v§Vra's._as__":.1n«der._for the months of September, "19a2ic§eaefi§1993.
.. Kfiigh e~8500 8000 7Loo 6500 Low 67.00 65.00 52.00 5 1. .00 Month Jan. 1993 Feb. 1993 Mar. 1993 High 61.00 61.00 52.00 56.00 49.00 42.00 45 These statistics would show that. the price of the shares of E'./[CD recorded a peak in April 1992 and started falling down in the perioldi. which can be calied post scam periodpV.td_t:rVii1;:j;'Vi. which the confidence of the public shares "
market was greatly shaken? ...i{.__is a_-lsonoteld. ~ that the price of the shares coritiini:ed...lt'o lsliiele down even after the right shares werevfmsue, a low figure of Rs.52/42j'i'ri Marc--h§ fall in price may be also.-dtie-_to--~.a cornbivnatiibn of other factors suc'hl:1SA it 1] Rigging of __prices of "shares-" substantially already the p'ubliCXto_ lure" the public of shard-3»i'subscri.:b'e to' the lsliares. 2] 3Sliakenlleontideheel_of the public as a result ofti.he_sca111«,.V ..
33; i 4} A 'Public issueteflshare.
4; 'l'l1.e aslsesseel has mentioned that the Exwright lllaiid C.1imw1'igh'tl prices of shares were Rs.8O and there was a difference of Rs. 10 A. It can be seen from the statistics giVenv"above that the difference between ex- right and cum~right prices made out is even lflflower than the difference between the high and low prices for each of the months from December £992 to March 1993. Since the 5%,...
h dither factsof the present case we are unable to accept the _' contentaion of the assessee that the revenue cannot sit in "tine arm chair of the business men to ascertain the 46 assessee renounced the right to acquire 3396.644 shares (nearly 1/3 of the total of 119.91.7'4-4 right shares to be issued at lower'-.j premium of R330/share) and this was to public for subscription at i"
premium of Rs.45 applicabie to which in turn must have the the company and reduced margin.»bAet'vJe~en:TV eX--right and cum rightsharest."'1"'herefo.re':~.§fkf'f1at.":
was quoted as ex--right__:a:nd prices upto Decernber._.flj-- _1; not have continued to exist extent'"afteia.~.fihefxsu_?rrender of large number rights assessee. In it i's"Vdii°ficult to conclude that-- the out between eX--right ali(i"v.(£UI1"1' price-sfwas real and that there {was reduction in prices of shares w':'aif.tributabie 't'o"'the right issue."
iris'-.1'-:"t.his background when IVIiss.Dhun E)a(i«abh'oy.Fi'apadia's case is examined with reference to (53,, 47 nature of transaction {which proposition holds good only as to how business is to be run} and not to the proposition as to how the authorities are empowered to examine the transaction when it can be couch_e'd:so';~asV. to have undue advantage.
29. The next incidental i.issoe"wliicl1-arisevs"'f0r7 consideration is as to whether t'h.e"--diinin1.i'.tion"in":the value of the shares [Nueleus"»$h'ares)V" .rhi'ch: entitle the assessee to claim capital._los_s.. jaren the opinion that said loss cannot be *'the'l~:assessee for the cibvioiis reason 'tf1atflish'e--r_e""is' notional loss in respect of a notional tiansfer' by'Aw'ay_"t.'of renunciation. When we have Q' helththiat therlelis nowtransfer by way of renunciation the 'ql{i€StiQ1jV'~'QfV""'allOWiI]g the capital loss in respect of n'oti"onalAlovssiisroizld not arise. The judgement in the ease of Thashar Commercial referred to Supra pressed into v~:lf"seri?ice by the learned counsel for assessee wherein the judgment of Miss. Dhun Dadabhoy Kapad1'a's case is agi»
32. Accordingly. the appeal is allowed in {he questions of law formulated in answered stated herein above' and p8Q1"T.ie3_"j;are V directed to bear their respective "x h % * __»A,¢r r Sd/~ sbb/~ L e r JUDGE